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Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

A non-recourse financing of receivables similar to factoring; called "forfaitierung" in Austria and Germany.  While a factor normally purchases a company's short-term receivables, a forfait bank purchases notes that are long-term receivables with maximum maturities of eight years.  The forfaiting bank has no recourse to the seller of the goods, but gets the notes at a substantial discount for cash.

The Comptroller of the Currency has reported that an increasing number of U.S. banks active in international financing have in recent years been financing receivables from Eastern European and developing countries by forfaiting.  The centers of forfaiting are Zurich and Vienna, where many large banks, including U.S. banks, provide forfaiting through either their branches or specialized subsidiaries.

Forfaiting is used when government export credits or credit guarantees are not available or when a seller does not extend long-term credits to areas such as Eastern Europe.  Forfaiting also is an important method of financing for small of medium-sized companies because it enables them to negotiate transactions that would normally exceed their financial capabilities.  By using forfaiting, small or medium-sized firms can immediately sell their long-term receivables without recourse.

The Handbook for National Bank Examiners of the Comptroller of the Currency calls for the examiner to review the bank's forfaiting activities carefully, to determine whether long-term receivables have been purchased from firms in countries prone to frequent political changes and fluctuations in exchange rates.  Also, the other risks peculiar to factoring are also present in forfaiting, along with the risks associated with the long-term nature of the receivables purchased.

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