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What is forfaiting transaction

What is meant by the forfaiting transaction?

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Forfaiting is the form of medium-term trade financing which is used to finance the sale of capital goods. A forfaiting transaction includes sale through exporter of the promissory notes which is signed by the exporter in favor of importer.  The forfait, generally a bank, purchases notes at the discount from face value.  Forfait not have recourse against the exporter in event of default by importer. Promissory notes normally extend out in series over the period of three to five years, with a note in series which gets matured in every six months.

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