FORFAITING Meaning and
Definition
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Forfaiting refers to a financial transaction where a company sells its accounts receivable or trade debts to a financial institution, known as a forfaiter, at a discounted rate. This allows the selling company to receive immediate cash flow for its outstanding debts rather than waiting for customers to make payments. Forfaiting is commonly used in international trade, particularly for companies engaged in exporting or importing goods.
In a forfaiting agreement, the forfaiter takes on the risk associated with the debts and becomes responsible for collecting payments from the customers. The forfaiter may provide a non-recourse agreement, meaning that if the customers fail to make payments, the forfaiter bears the loss and cannot seek compensation from the selling company. Thus, forfaiting helps companies manage their credit risk and provides them with liquidity.
The discount rate applied to the accounts receivable depends on factors such as the creditworthiness of the customers, the term of the debts, and prevailing market conditions. The forfaiter's profit is determined by the difference between the discounted purchase price and the amount collected from customers. Forfaiting may also involve the provision of additional services, such as currency exchange and financing, to facilitate international trade.
Overall, forfaiting offers a flexible and efficient way for companies to obtain immediate cash flow by selling their accounts receivable, helping them to manage their working capital and mitigate credit risks.
Common Misspellings for FORFAITING
- dorfaiting
- corfaiting
- vorfaiting
- gorfaiting
- torfaiting
- rorfaiting
- firfaiting
- fkrfaiting
- flrfaiting
- fprfaiting
- f0rfaiting
- f9rfaiting
- foefaiting
- fodfaiting
- foffaiting
- fotfaiting
- fo5faiting
- fo4faiting
- fordaiting
- forcaiting
Etymology of FORFAITING
The word forfaiting has an etymology that traces back to the Old French language. It originated from the word forfaire, which meant to transgress or to forfeit. In medieval times, when a debtor failed to pay off their debts, they would have to forfeit or surrender their goods or property to the creditor as a form of penalty. This practice was known as forfait. Over time, the term forfait evolved to have a more specific meaning in the context of international trade finance and was adopted into English as forfaiting.
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