Forfaiting - Export

Forfaiting

ITFA

Export

(Sales, Financing, Bill of exchange, Promissory note, Letter of credit, Aval)

(Factoring)

Republication: https://www.export.gov/article?id=Trade-Forfaiting

• Forfaiting eliminates virtually all risk to the exporter, with 100 percent financing of contract value.
• Exporters can offer medium and long-term financing in markets where the credit risk would otherwise be too high.
• Forfaiting generally works with bills of ex­change, promissory notes, or a letter of credit.
• In most cases, the foreign buyers must provide a bank guarantee in the form of an aval, letter of guarantee or letter of credit.
• Financing can be arranged on a one-shot basis in any of the major currencies, usually at a fixed interest rate, but a floating rate option is also available.
• Forfaiting can be used in conjunction with officially supported credits backed by export credit agencies such as the U.S. Export-Import Bank.

Similar to factoring, forfaiting virtually elimi­nates the risk of non-payment, once the goods have been delivered to the foreign buyer in accordance with the terms of sale. However, unlike factors, forfaiters typically work with exporters who sell capital goods and commodities, or engage in large projects and there­fore need to offer extended credit periods from 180 days to seven years or more. In forfaiting, receivables are normally guaranteed by the importer’s bank, which allows the exporter to take the transaction off the balance sheet to enhance key financial ratios. The current minimum transaction size for forfaiting is $100,000. In the United States, most users of for­faiting are large established corporations, but small and medium-size companies are slowly embracing forfaiting as they become more aggressive in seeking financing solutions for exports to countries consid­ered high risk.

The Association of Trade & Forfaiting in the Americas, Inc. (ATFA) and the International Forfaiting Association (ITFA) are useful sources for locating forfaiters willing to finance exports. ATFA and ITFA are as­sociations of financial institutions dedicated to promoting international trade finance through forfaiting. ATFA is located in New York, and its Web site is www.tradeandforfaiting.com. ITFA is located in Switzerland and its Web site is itfa.org/