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Forfeiting Exporters sometimes use forfeiting. Forfeiting, which in some ways is similar to factoring, involves the surrender by the Seller of its rights to a negotiable debt instrument (such as a promissory note, or a usance letter of credit) in return for an immediate payment from the Forfeiter. Typically, forfeiting is done with longer-term accounts receivable-typically due in one to five years and when large amounts of money (typically in millions of dollars) are involved. These longer-term accounts receivable may carry the guarantee of the foreign government or may be covered by a letter of credit, a promissory note, or a bill of exchange. The advantage to the exporter of forfeiting is immediate cash against its accounts receivable. The cost involves the fact that the forfeiter pays less than the face value of the obligation. The discount rate charged by the Forfeiter is a function of a number of factors including:
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