Requirements in connection with forfaiting. Unless the importer, i.e. the primary payer, is a first-class obligor, any for- faited debt will require a financial security in the form of an “aval” or an unconditional on demand bank guarantee in a form acceptable to the for- faiter (the purchaser of the debt). This condition is important in view of the nonrecourse character of the business, because the forfaiter is then dependent only upon the security of the guarantee in case the party primarily responsi- ble for the payment would fail to pay. Forfaiting is thus mainly used in medium-term business (6 months – 5 years), but the individual forfaiter will determine his own limits largely fol- lowing market conditions, and his assessment of risks involved in a particular transaction. In forfaiting the purchase of bills of exchange is normally made by the purchaser of the debt (the forfaiter), who then deducts the interest (discount) in advance for the whole credit period. This means from a practical point of view that the exporter virtually converts his credit-based sale into a cash transaction.37 His sole responsibilities then lie in the satisfactory manufac- ture and delivery of the goods38 and the correct drafting of the documenta- tion concerning the transaction. This is also where forfaiting may come out as a comparatively attractive solution for the exporter.39 Forfaiting may in some countries be used as a relatively inexpensive alter- native to other forms of export financing which are available and which may change over time. That being said, it will remain necessary for the exporter to determine the access to various methods and also compare the costs and risks involved with them.
