Forfaiting buys an exporter's future payment claims outright, with no recourse to the exporter
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Ossiano Guides · Getting paid
The exporter sells promissory notes, bills of exchange or letter of credit obligations to a forfaiter at a discount, receives cash against documents, and has no further financial interest in the deal.
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01 · What it is
Forfaiting is the outright sale of a payment claim with no recourse to the seller
is the purchase of future payment obligations, normally in negotiable or transferable form, according to the Global Supply Chain Finance Forum (GSCFF). The buyer of the obligation pays either at a or at face value in return for a separate financing charge.
The US International Trade Administration's Trade Finance Guide (July 2022) describes the same sale from the exporter's side: exporters sell medium and long-term foreign receivables at a discount, without recourse. The asset changing hands is the , and the party buying it is the .
"without recourse discounting of an instrument representing an exporter's receivables"
International Chamber of Commerce, news release on URF 800, August 22, 2017
The ICC adds that the receivables are payable at a future date. Our forfaiting instrument card sets out the parties and documents on one page.
02 · The instrument
The claim must sit in an instrument separate from the sales contract
Typical forfaiting instruments are the and the , and letter of credit obligations are also widely forfaited, the GSCFF notes. Whatever the form, the payment obligation must be embodied in a legal instrument distinct from the commercial transaction.
English law shows why that separation matters. Under the Bills of Exchange Act 1882, section 3, a bill of exchange is "an unconditional order in writing". Under section 83, a promissory note is "an unconditional promise in writing". The promise to pay stands on its own, apart from any dispute about the goods.
A bank can strengthen the instrument by adding its own guarantee to it, an , as the GSCFF Standard Definitions (2016) describe. Our guide to bills of exchange and promissory notes covers both instruments in depth, and the bill of exchange and promissory note card summarizes them.
03 · The flow
The exporter prices the discount in before signing the sale
The ITA guide (pages 24 to 25) sets out the sequence. The exporter approaches a forfaiter before finalizing the commercial structure of the transaction. Once the forfaiter commits and sets the discount rate, the exporter can incorporate the discount into its selling price.
The exporter then accepts the commitment, signs the contract with the importer and obtains a guarantee from the importer's bank if required. It delivers the goods to the importer and the documents to the forfaiter, which verifies them and pays. Because payment is without recourse, the exporter has no further interest in the financial aspects of the transaction.
Figure 1 · Interactive
How a forfaited note moves from importer to investor
Tap a market to follow the note. The last step shows who is paid at maturity.
Sources: US International Trade Administration, Trade Finance Guide, July 2022, pages 24 to 25; Global Supply Chain Finance Forum, forfaiting page, revised October 31, 2024; Bills of Exchange Act 1882, section 83. Step 9 combines the statute and the ITA guarantee step.
04 · Tenor and pricing
Forfaiting covers terms from one month to several years, priced as a base rate plus a risk margin
The GSCFF puts forfaiting at one month to several years. The ITA places it at 180 days to seven years or more, for exports of capital goods, commodities and large projects on medium and long-term credit.
The advance is normally 100 percent of face value less finance charges, according to the GSCFF, and the ITA describes forfaiting as offering 100 percent financing of contract value. The ITA sets the cost as a discount rate made of a base rate for the tenor plus a margin for the risk sold. That risk varies with the importing country, the length of the credit, the currency and the repayment structure.
Two standard formulas turn a rate into proceeds. Under a , the charge comes off the face value. Under , the proceeds are the amount that grows to face value at the same rate. Discount-basis quotation is an established money market convention, and US money market rates are annualized on a 360-day year, as footnotes to the Federal Reserve's H.15 release explain. Our guides to tenor and how trade finance is priced go further.
Figure 2 · Try it
What a series of notes is worth today
Set the notes and the rate. Switch between straight discount and discount to yield to see the difference.
Number of notes
Days between maturities
Discount method
Total face value
-
Total proceeds to the exporter
-
Total discount
-
Formula: straight discount proceeds equal face times one minus rate times days over 360; discount to yield proceeds equal face divided by one plus rate times days over 360. Note 1 matures after one interval, note 2 after two, and so on.
Our Research Desk used both standard discount formulas on a 360-day year. The rates shown are for illustration and are not Ossiano pricing.
This calculator explains the concept only. Forfaiting discounts vary with the importing country, the length of the credit, the currency and the repayment structure.
At the defaults, five notes of $200,000 each, maturing every 180 days and discounted at 6.00 percent, return $910,000.00 under straight discount and $918,824.71 under discount to yield. The gap of $8,824.71 widens with each later maturity, from $174.76 on the first note to $3,913.04 on the fifth.
05 · Primary and secondary markets
Forfaited assets trade on, still without recourse
In the , obligations are bought from sellers or buyers, often involving a bank in the buyer's country, the GSCFF explains. In the , finance providers and investors buy forfaited assets without recourse to the seller of the asset.
A buyer who takes a complete and regular bill before maturity, in good faith and for value, is a under the Bills of Exchange Act 1882, section 29. The ICC Store description of the rules says they cover forfaiting agreements in the primary market and forfaiting confirmations in the secondary market.
06 · The rulebook
Forfaiting has ICC rules co-published with ITFA and endorsed by UNCITRAL
The rules are ICC publication P800E, published in 2012, according to the ICC Store. The ICC Banking Commission approved them in Mexico City in November 2012, and they came into effect on January 1, 2013, the ICC reported. They provide a contractual framework covering letters of credit, bills of exchange, promissory notes and invoice purchases.
UNCITRAL endorsed URF 800 at its 50th plenary session in Vienna on July 14, 2017, the ICC announced on August 22, 2017. The rules were produced jointly by ICC and the International Trade and Forfaiting Association, which lists them among its key publications.
Figure 3
Forfaiting's rulebook, 2012 to 2017
Each row is one dated milestone for the rules.
Sources: International Chamber of Commerce, news releases of January 30, 2013 and August 22, 2017; ICC Store, URF 800.
07 · Ossiano view
Forfaiting gives exporters a clean exit from long credit terms
Research Desk reading, for Shrini's review.
OBSERVATION 01
Credit terms without carrying the credit
Payment without recourse leaves the exporter with no further financial interest in the transaction, while the buyer still receives terms of up to seven years or more.
OBSERVATION 02
Pricing is known before the contract
The forfaiter commits and sets the discount rate before the sale is signed, so the exporter can build it into the selling price.
OBSERVATION 03
A rulebook with global endorsement
URF 800, produced by ICC and ITFA, gained UNCITRAL endorsement on July 14, 2017, giving primary and secondary market deals a shared framework.
Summary
Forfaiting turns a long-dated payment promise into cash now
Forfaiting is the without recourse purchase of future payment obligations, normally in negotiable or transferable form. Typical instruments are bills of exchange and promissory notes, and letter of credit obligations are also widely forfaited. The advance is normally 100 percent of face value less finance charges.
The ITA places forfaiting at 180 days to seven years or more. ICC's Uniform Rules for Forfaiting took effect on January 1, 2013, and UNCITRAL endorsed them on July 14, 2017.
Related guides: bills of exchange and promissory notes, letters of credit, pre-shipment vs post-shipment finance, trade credit insurance, tenor explained and financing industrial goods trade. Instrument cards: forfaiting, bill of exchange and promissory note, letter of credit (usance, acceptance, deferred payment), ECA-backed finance and demand guarantee. Every term is defined in the Trade Finance Glossary.
For questions on how these shifts affect existing or planned trade finance exposures, contact the Ossiano Research Desk.
Sources
- International Trade Administration, US Department of Commerce, The Trade Finance Guide: A Quick Reference for US Exporters, July 2022. Supports: forfaiting definition; 100 percent financing of contract value; 180 days to seven years or more; how forfaiting works, steps 1 to 5 (page 25); cost as a base rate plus a risk margin; risk drivers.
- Global Supply Chain Finance Forum, Forfaiting, October 31, 2024. Supports: definition; typical instruments; advance of 100 percent of face value less finance charges; instrument distinct from the commercial transaction; tenors of one month to several years; primary and secondary market parties; recourse.
- International Chamber of Commerce (ICC), UN endorses ICC Uniform Rules for Forfaiting URF 800, August 22, 2017. Supports: UNCITRAL endorsement on July 14, 2017 at the 50th plenary session in Vienna; joint ICC and ITFA production; the ICC description of forfaiting quoted in section 01.
- International Chamber of Commerce (ICC), Launch event explains new ICC rules for forfaiting, January 30, 2013. Supports: approval by the ICC Banking Commission, November 2012; effective date January 1, 2013; instrument scope of the rules.
- International Chamber of Commerce (ICC), Uniform Rules for Forfaiting URF800, English version (ICC Store), 2012. Supports: ICC publication P800E, 2012; coverage of primary market agreements and secondary market confirmations.
- International Trade and Forfaiting Association, A Summary of ITFA's Key Publications, November 2023. Supports: URF 800 listed as co-published with ICC.
- legislation.gov.uk (UK Parliament), Bills of Exchange Act 1882, section 3, 1882. Supports: a bill of exchange is an unconditional order in writing, section 3(1).
- legislation.gov.uk (UK Parliament), Bills of Exchange Act 1882, section 83, 1882. Supports: a promissory note is an unconditional promise in writing, section 83(1); payment at maturity in Figure 1, step 9.
- legislation.gov.uk (UK Parliament), Bills of Exchange Act 1882, section 29, 1882. Supports: holder in due course, section 29(1).
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance, March 2016. Supports: the aval as a guarantee added to a negotiable instrument (page 34).
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: discount-basis quotation (footnote 4) and the 360-day year (footnote 3), used in Figure 2.
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