does forfaiting work?
The exporter approaches a forfaiter
before finalizing a transaction’s structure for the mutually
agreed discount rate. Once the deal is finalized the discount rate
can be incorporated into the selling price. The exporter then accepts
a commitment issued by the forfaiter, signs the contract with the
importer, and obtains, if required, a guarantee from the importer’s
bank that provides the documents required to complete the forfaiting.
The goods are then delivered to the importer and the documents are
sent to forfaiter who verifies them and pays for them as per agreed
Terms and Condition . Since this payment is without recourse, the
exporter has no further interest in the transaction and it is the
forfaiter who must collect the future payments due from the importer.
The forfaiter bears the risk of the credit instrument thereafter.
What information does
a Forfaiter need?
The Forfaiter needs to know who
the buyer is and his nationality; what goods are being sold; detail
of the value and currency of the contract; and the date and duration
of the contract, including the credit period and number and timing
of payments (including any interest rate already agreed with the
buyer). He also needs to know what evidence of debt will be used
(either promissory notes, bills of exchange, letters of credit),
and the identity of the guarantor of payment (or avalor).
When forfaiting be used?
Forfaiting is used for international
trade transactions. Normally, a Forfaiting house would not expect
to handle transactions worth less than $100,000. However emerging
trends in the Forfaiting transactions has made it flexible enough
to accept trade finance instruments of lesser value.
What is Discountable?
The exporter is generally assured
by the Credit instruments, given by the creditors on the revocable
basis. These instruments could be discounted further for the various
benefits for the protection against credit risk.
Documents evidence is provided for the debt owned by the buyer
in the wide range such as
- Bills of Exchange
- Letters of Credit/Standby Letters
- Payment guarantees
- Promissory Notes
- Open Book Receivables, subject
to certain conditions
In most instances, the debt
will need to bear the unconditional, irrevocable and freely transferable
guarantee or the aval of an acceptable bank in the Buyer's country.
In some cases however, with top tier corporate or government debt,
BFC can carry out transaction without additional bank security.
more specific enquiries apply for
Online Inquiry Form.