What is Forfaitng ?
Forfaiting is the discounting of international trade receivable on a 100% "without recourse" basis. It is a form of suppliers credit involving the sale or purchase of receivables falling due at some future date. The exporter is, of course, responsible for the validity of his order and execution thereof, but once documentation has been delivered and accepted and discounting is done, there is absolutely no recourse to the Exporter, with the exception of an underlying fraudulent transaction. Forfaiting effectively transforms a credit sale into a cash sale.
Forfaiting transforms the supplier's credit granted to the importer into cash transaction for the exporter protecting him completely from all the risks associated with selling overseas on credit.
Traditionally, forfaiting is fixed interest rate and medium term (3-5 years) financing. It can however, be structured on a floating rate interest basis as well as for longer periods up to 10 years or for shorter periods down to 90 days. Forfaiting is generally suitable for high value exports like heavy machinery, capital goods, consumer durable, vehicles, bulk commodities, consultancy and construction contracts and project exports. |
