Forfaiting

The Forfaiting solution provides short - medium- and long-term financing for domestic or cross-border operations. Our specialist Meryem Bzioui BZIOUI explains how this solution works, its advantages and its differences compared to factoring, Societe Generale Factoring's core business.

Meryem joined Societe Generale Factoring's Forfaiting team in January 2023 after several years within the Societe Generale Group, including seven years in the Global Banking and Advisory (GLBA) Business Unit, first as a front officer in aviation finance, then as Product Owner.

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How does Forfaiting work?

Forfaiting is a non-recourse financing solution based on the discounting of negotiable instruments (bill of exchange or promissory note). These negotiable instruments bear an unconditional and irrevocable payment obligation given by a buyer to its supplier and can be transferred by the latter to a financial institution.

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Benefits:

This solution offers many advantages, mainly the extension of payment terms and the financing of medium and long-term export operations in a secured manner.

When an exporting company transfers ownership of a bill of exchange or promissory note to a financial institution, it is no longer subject to any country risks or to any possible negative variation in the exchange rate that could impact the profitability of its operations.

Forfaiting also makes it possible to grant additional payment terms to a buyer without impacting the supplier's cash flow, an element that can be a key success factor in the context of a commercial negotiation.? In addition, Forfaiting is a non-recourse financing solution, allowing the selling company to deconsolidate the underlying receivable from its balance sheet.

"Forfaiting is agile, flexible, and easy to implement."

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How does Forfaiting differ from factoring?

In a Forfaiting program, the financing is based on the purchase of commercial paper and not receivables, on maturities that can be longer than one year.

Unlike a traditional factoring or reverse factoring program, where financing is done on a multitude of low-notional, high-frequency transactions, Forfaiting finances high-notional transactions on fairly low frequencies (about 1 to 2 per month).??

"In a Forfaiting program, we rely on the non-recourse discount of commercial paper. Thus, we can finance operations with maturities of up to 5 years."

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Conclusion

Forfaiting is a simple financing solution, offering many advantages and is widely used by both exporting companies and on domestic markets.

The downside of this solution is the use of paper documents in France which should soon be overcome by the dematerialization of negotiable instruments. The digitalization of Forfaiting, which is underway in France, will pave the way for a wider use of this solution thanks to the gains made in terms of costs, security and simplification of operational processing.

?It is also expected that these changes will make this financing instrument more accessible to a greater number of companies of all sizes.