Forfaiting is when an exporter sells a buyer's promise to pay later, usually a bill of exchange or promissory note guaranteed by the buyer's bank, to a forfaiter for cash now. It's without recourse, so the forfaiter takes the risk that the buyer doesn't pay. It suits UK limited companies selling capital goods on credit of 180 days or more.

Worth knowing: the UK government backs the same kind of deal. UK Export Finance's Bills and Notes Guarantee covers bills and notes a bank buys from a UK exporter, typically on contracts of £1 million to £30 million (gov.uk, updated 15 December 2025).

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What is forfaiting?

Forfaiting is a type of trade finance where a bank or specialist firm (the forfaiter) buys the debt your overseas buyer owes you, at a discount and without recourse to you. It's most often used for exports.

Your buyer gets time to pay. You get paid when you ship, and you hand the risk of waiting to someone else.

Forfaiting usually fits when:

• You're selling capital goods, such as machinery, or a large one-off order.
• Your buyer wants 180 days to seven years to pay, the usual range (trade.gov).
• The deal is large.
• The buyer's bank will guarantee the debt, or it's paid under a letter of credit.

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How does forfaiting work?

You agree credit terms with your buyer, the buyer's bank guarantees the debt, you ship, and you sell the guaranteed paper to the forfaiter, who pays you the discounted value. When the debt falls due, the forfaiter collects from the buyer's bank, not from you.

A typical deal runs like this:

1. Before you agree a price with your buyer, ask a forfaiter for an indicative price, so you can build the cost in.
2. You sign the sales contract, with payment spread over the credit period.
3. The forfaiter issues a commitment letter: the discount rate, the documents it needs and the deadline.
4. Your buyer issues promissory notes, or accepts bills of exchange you draw. The buyer's bank guarantees them, either by adding its "aval" (a signed guarantee on the note itself) or by issuing a separate guarantee or a letter of credit.
5. You ship the goods and send the shipping documents.
6. You sell the guaranteed notes or bills to the forfaiter and it pays you the discounted amount.
7. At each due date, the forfaiter presents the paper to the guaranteeing bank and collects the full face value.

How fast you're paid depends on the paper. Paper with a well-known bank's aval can settle about one business day after all the documents are in. Paper backed only by the buyer's own credit can take days or weeks.

These are the instruments forfaiters usually buy:

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What "without recourse" covers, and what it doesn't

Without recourse means the forfaiter can't come back to you if the buyer or its bank doesn't pay, or if a country or transfer problem stops the money reaching it. You're still responsible for delivering what you sold and for the documents being genuine and valid.

The forfaiter takes on:

• The risk that the buyer or guaranteeing bank doesn't pay.
• Country and transfer risk, such as a government stopping payments leaving the country.
• The interest-rate risk on the credit period, once the discount is fixed.

You keep:

• Responsibility for the goods or services: their quality, delivery and any dispute with your buyer.
• The risk that the paper isn't valid. The protection only holds if the documents are free from dispute, fraud or breach.

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What does forfaiting cost?

The main cost is the discount: the forfaiter pays you less than the face value, based on an interest rate for the time until payment plus a margin for the buyer, bank and country risk. Expect forfaiting to cost more than other trade finance, because the forfaiter takes all the risk (trade.gov).

What makes up the price:

• Discount rate. Fixed or floating, for example a benchmark rate plus a margin, applied to 100% of the face value. Longer terms and riskier countries cost more.
• Days of grace. A few extra days some forfaiters add to cover the time payments take to arrive from the buyer's country.
• Commitment fee. Some forfaiters charge this from when they commit to the deal until they buy the paper. ICC practitioners say there are typically no other fees beyond the discount (ICC Academy, 19 May 2026).
• The bank guarantee. Your buyer's bank charges your buyer for the aval or guarantee. It's not your fee, but it can affect the price you agree.

There's no published standard rate, so ask two or three forfaiters to price your actual deal.

On VAT, HMRC treats selling the debt to a forfaiter as an exempt supply (VATFIN3235).

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A worked example: a £500,000 promissory note

On a £500,000 note due in 12 months, an illustrative discount rate of 7% a year gives a £35,000 discount, so you'd receive £465,000 now. This is an example, not a quote. Real rates depend on the guaranteeing bank, its country, the currency and the term.

Without forfaiting, you'd wait 12 months for £500,000 and carry the risk of non-payment. With it, you get £465,000 now and the risk passes to the forfaiter. Days of grace or a longer term would add to the discount.

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Forfaiting vs factoring, export finance and letters of credit

Factoring suits regular, short invoices of up to 180 days. A letter of credit secures payment but doesn't pay you early on its own. Forfaiting suits one-off, larger sales on longer, bank-guaranteed credit. Export finance is the wider family that includes all of these, plus support from UK Export Finance.

Sources: ICC Academy (19 May 2026); trade.gov; gov.uk Bills and Notes Guarantee (updated 15 December 2025).

The two can work together: a deferred-payment letter of credit can itself be forfaited. For the wider set of options, from working capital to buyer credit, see our guide to export finance.

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Where UK companies get forfaiting

Start with your bank's trade finance team, specialist forfaiters and UK Export Finance, whose Bills and Notes Guarantee backs this kind of deal. Talk to them before you agree the price with your buyer, so the cost is built in.

• Banks with trade finance desks. HSBC, for example, offers export forfaiting .
• Specialist forfaiters. Many are members of the International Trade and Forfaiting Association (ITFA), the industry body based in Zürich.
• UK Export Finance (UKEF). Under the Bills and Notes Guarantee, UKEF guarantees the bank that buys your bills or notes. It covers up to 85% of the contract value, the buyer must pay at least 15% directly, and the fee is set case by case.

Questions to ask a forfaiter:

• Will you accept the risk of my buyer's bank and country, for this term?
• What discount rate, days of grace and commitment fee would apply?
• Which documents do you need, and by when?
• Will the deal follow the Uniform Rules for Forfaiting?

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Does iwoca offer forfaiting?

No. iwoca doesn't buy export receivables or offer forfaiting. Where an iwoca Flexi-Loan can fit is a shorter working-capital gap around an export order, such as paying for materials or wages before you ship.

A Flexi-Loan lets you borrow up to £1m over up to five years, and you can repay early with no penalty. You'll get a decision within 24 hours. Every new Flexi-Loan needs a personal guarantee from a director, at least one, so you're personally on the hook if the company can't repay. It's for UK limited companies.

A Flexi-Loan isn't a substitute for forfaiting. It doesn't take on your buyer's payment risk, and it isn't designed to carry a six- or seven-figure receivable for years.

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Forfaiting: common questions

Is forfaiting a loan?

No. You sell the debt outright, so there's nothing to repay once the deal is done, as long as the goods and documents are as agreed. Banks such as HSBC describe it as off-balance-sheet financing, but check the accounting treatment with your accountant.

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What rules govern forfaiting?

Many deals follow the Uniform Rules for Forfaiting (URF 800), written by the ICC with ITFA and in effect since 1 January 2013. They only apply when the contract says so (ICC).

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Can you forfait digital bills of exchange?

Yes, in principle. Under the Electronic Trade Documents Act 2023, in force since 20 September 2023, a bill of exchange or promissory note can exist in electronic form with the same legal effect as paper, if it meets the Act's criteria. Check your forfaiter accepts electronic paper.