What is forfaiting
Forfaiting is a form of international financing which involves the discount of future payment obligations on a without recourse basis.
Forfaiting is a flexible discounting technique that can be tailored to the needs of a wide range of trade related receivables such as goods and services including commodities, technology, consumer and capital equipment.
Although discounted receivables typically have maturities over medium terms of 3 to 5 years, they can be as short as 6 months or as long as 10 years.
- Financing without recourse of the deferred payment;
- Financing on a fixed interest rate basis;
- The debt is usually represented by promissory notes, bills of exchange, letters of credit or letters of guarantee;
- Normally the drafts (Promissory notes or bills of exchange) are guaranteed by aval or by a separated letter of guarantee issued by the Bank of the debtor/Importer;
- Transaction values can range from EUR 100.000 to EUR 200 million;
- Debts instruments are typically denominated in Euro, US Dollars, Swiss Franc or British Pound.
- Enhances Competitive Advantage:
- Enables exporters of goods to make their products more attractive by offering credit terms to their customers;
- Financing cost of the transaction can be quickly quantified.
- Eliminates Risk:
- Removes political, transfer and commercial risk;
- Protects against risk of interest rate increase and exchange rate fluctuation.
- Improves Cash Flow:
- Provides Financing for 100% of deferred amount;
- Enables exporters to receive cash payment while offering credit terms to their clients;
- Acts as additional source of funding and hence does not have an impact on the Exporter’s borrowing limits.
- Increases Speed and Simplicity of Transactions:
- Financing commitments can be issued quickly;
- Documentation is typically concise and straightforward;
- Relieves the Exporter of administration and collection burden.
We assist from initial negotiation of a contract to final financial settlement for discount without recourse transactions with short, medium and long payment terms, represented by promissory note/bill of exchange, letter of credit and letter of guarantee.