Forfaiting is a financial arrangement in international trade where Mustang(forfaiter) purchases trade receivables, usually arising from the export of goods, from an exporter. These receivables are typically in the form of medium- to long-term promissory notes or bills of exchange, which represent the amounts owed by the importer. The forfaiter assumes the risk of non-payment and provides immediate cash to the exporter, minus a discount or fee.

Breakdown key elements of forfaiting:

1. **Exporter and Importer Relationship:**
   - An exporter sells goods or services to an importer on credit terms, typically with deferred payment, usually ranging from several months to several years.

2. **Trade Receivables:**
   - The exporter holds trade receivables, which are promissory notes or bills of exchange representing the amounts the importer owes.

3. **Forfaiter's Role:**
   - The forfaiter is a specialized financial institution or a department within a bank that purchases these trade receivables from the exporter before they mature.

4. **Immediate Cash Flow:**
   - By selling the receivables, the exporter receives immediate cash, improving liquidity and reducing the financial risk associated with non-payment.

5. **Risk Transfer:**
   - The forfaiter assumes the risk of non-payment, taking into account political, commercial, and transfer risks associated with the transactions. This allows the exporter to transfer the credit risk to the forfaiter.

6. **Discounting:**
   - The forfaiter provides funds to the exporter at a discounted rate, which is determined by various factors, including the creditworthiness of the importer, the maturity of the receivables, and prevailing market conditions.

7. **Fixed Interest Rate:**
   - Forfaiting transactions often involve fixed interest rates, providing certainty to the exporter regarding the amount they will receive.

8. **Medium- to Long-Term Financing:**
   - Forfaiting is commonly used for medium- to long-term financing, especially in cases where traditional financing options may be limited.

Forfaiting is a valuable tool for exporters seeking to mitigate credit risk, improve cash flow, and promote international trade by offering attractive financing terms to importers. It is particularly common in transactions involving capital goods, large infrastructure projects, or when dealing with buyers in politically or economically unstable regions.