Forfaiting — Exporter Sells Long-Term Export Receivables at Discount (Without Recourse)

💡 Accountant's Note

Forfaiting is a specialized form of export finance for capital goods and infrastructure projects with long-term payment terms (1–10 years). Unlike factoring (typically short-term trade receivables), forfaiting involves medium-to-long-term payment obligations, often evidenced by bills of exchange, promissory notes, or letters of credit from the buyer's bank. Example: A Swiss machinery manufacturer exports equipment to a Brazilian buyer on 5-year deferred payment terms, with payments backed by a Brazilian bank guarantee. The exporter sells the $5M payment obligation to a forfaiter (Deutsche Bank, Standard Chartered, or specialized forfaiting houses) at a discount reflecting: (1) the credit risk of the Brazilian bank, (2) the time value of money over 5 years, (3) the forfaiter's profit margin. The forfaiting is WITHOUT RECOURSE to the exporter — the forfaiter bears all credit risk. Revenue recognition: the manufacturer recognizes revenue at export delivery (the performance obligation is complete); the forfaiting is purely a financing transaction — the discount is a financing cost, not a revenue deduction.