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| 1 |
What is the role of GTF in
a forfaiting transaction? |
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GTF is the interface between the exporter
in India and any of the forfaiting agency
overseas. It facilitates the entire transaction: from obtaining indicative quotes and firm
bids, to completing all the necessary documentation for meeting local regulations and requirements of forfaiting agencies. |
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| 2 |
When should an exporter contact GTF? |
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Ideally, immediately after it has identified a potential
sale in a particular country.
GTF would advise which countries can be financed and for what period.This enables the exporters to present their buyers with a comprehensive financial package while being assured that all the necessary costs have been covered. |
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| 3 |
How can the exporter be certain that
financing is in place before it signs the contract? |
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If the exporter is reasonably
confident of being awarded the contract, and
wants to fix the discounting costs, GTF may
be in a position to grant the exporter an
option. The option is a commitment given for
a determined period of time. It fixes all the discounting conditions and allows the exporter to sign the commercial contract with the certainty that it will be able to sell the debt
instruments, without recourse, after having completed delivery of the goods or service. If the contract is awarded to the exporter before the expiration of the
option, the option automatically turns into
a firm forfaiting commitment. |
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| 4 |
Why does an importer need to obtain a
bank guarantee, why don't they just borrow the money locally? |
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In many emerging markets, companies and
banks alike may have significant difficulty
in borrowing medium term fixed rate money.
As a result, even if the importer could obtain
a fixed rate medium term loan, the interest
rate is likely to be prohibitively high. The
local bank, because of its relationship with
the importer plays a key role by issuing a
guarantee, thereby allowing its customer to
access foreign sources of funding. |
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| 5 |
How long does it generally take the forfaitor
to indicate interest in a transaction? |
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GTF recognizes that the exporter's commercial
negotiations are often very fast moving, and
as such, GTF can usually provide an immediate
indication usually within 24-48 hours for
most of the markets. |
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| 6 |
What level of down payment is required
to be paid by the importer to forfait a transaction? |
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No down payment is required as forfaiting
is possible for 100% of the value of the commercial
contract. |
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| 7 |
A significant portion of an exporter's
finished product is manufactured in other countries. Does this
affect the forfaiting of the transaction? |
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No. As long as the transaction does not
violate any government export or import regulations,
100% of the transaction could qualify for
financing. |
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| 8 |
What happens if the importer does not
pay its debt to us at maturity? |
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Forfaiting is 100% without recourse, and
as such, the exporter is not responsible for
repayment at maturity. |
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| 9 |
An exporter has a relatively long manufacturing
period. How long prior to the availability of the documents
can the forfaitor commit to purchase the receivables? Is the
exporter covered for fluctuations in interest rates during this
period? |
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Depending on the specific transaction,
GTF may be in a position to commit to purchase
receivables up to 18 months prior to delivery.
If interest rate risk is of concern to the
exporter, GTF can commit to discount the debt
at a fixed rate, which will protect the exporter
from adverse movements in interest rates during
the manufacturing and delivery periods. |
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| 10 |
When does an exporter get paid? |
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It is in everyone's interest to accelerate
the payment as much as possible. Clearly, the forfaitor has to go through a checking process, but with GTF's assistance and the cooperation of the importer and his bank, in most cases payments are made within 3-4 weeks from the shipment date. |
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| 11 |
How to adjust the sale price to include the discount costs
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Experience has shown that
in the face of stiff competition it is very
difficult to overtly pass on financing costs
to the importer in addition to the value of
the order. Thus the exporter usually endeavours
to calculate probable financing cost in advance
to incorporate them in the order value and
render them less obvious.
Investigation by the exporter at an early
stage on the possibilities of forfaiting with
the forfaiter may result in a useful discount
in addition to simplifying financial calculations.
By adjusting the value of the order in time,
the exporter can avoid financial burdens arising
at a later stage (after execution of the contract
or even after delivery) although at the same
time all risks resulting from the lengthy
delivery period of the export transaction
are borne by the forfaiter. It is therefore
recommended that an exporter seek the advice
and support of an experienced forfaiter for
the calculations. GTF staff will be delighted
to help you and perform your calculations
for you. |
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| 12 |
What sort of exports can be forfaited? |
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Forfaiting suitable for high value exports
like: |
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Capital Goods |
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Consumer Durables |
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Vehicles |
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Consultancy & Construction contracts |
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Project exports |
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Bulk commodities |
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| 13 |
Why should an exporter forfait bank guaranteed receivables?
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Risky countries
The risk covered by the forfaiter may not be acceptable to the
exporter and he may wish to have these off from his books. Countries
currently covered by GTF are given in the country list.
Liquidity over long tenor
Credit requests beyond 180 days are difficult to fund through
commercial banks. Forfaiting offers an easy solution to finance
these receivables.
Interest Rate fluctuations
Long credit transactions are susceptible to interest rate
fluctuations, which may impair the profitability if the interest
rate moves against the estimates built into the contract.
Since forfaiting involves upfront discounting, the interest
cost is known in advance to the exporter and the importer.
It can be easily built into the contract and hence both the
parties are protected from adverse fluctuations in interest
rate.
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