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Definition of 'Forfaiting'
The purchasing of an exporter's receivables (the amount importers owe the exporter) at a discount by paying cash. The forfaiter, the purchaser of the receivables, becomes the entity to whom the importer is obliged to pay its debt.
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Investopedia explains 'Forfaiting'
By purchasing these receivables - which are usually guaranteed by the importer's bank - the forfaiter frees the exporter from credit and from the risk of not receiving payment from the importer who purchased the goods on credit. While giving the exporter a cash payment, forfaiting allows the importer to buy goods for which it cannot immediately pay in full. The receivables, becoming a form of debt instrument that can be sold on the secondary market, are represented by bills of exchange or promissory notes, which are unconditional and easily transferred debt instruments.
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