Forfaiting
Encyclopedia
In trade finance
, forfaiting involves the purchasing of receivables from exporters. The forfaiter takes on all risks involved with the receivables.Where are the independent and verifiable cites for this? Links? The forfaiting operation is a transaction-based operation (involving Exporters) involving the sale of one of the firm's transactions. Factoring
is also a financial transaction involving the purchase of financial assets, but Factoring
involves the sale any portion of a firm's Receivables.J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, "The Vest Pocket CPA", Wiley, 2005.
The characteristics of a forfaiting transaction are:
At its simplest the receivables should be evidenced by a promissory note, a bill of exchange, a deferred-payment letter of credit, or a letter of guarantee.
Three elements relate to the pricing of a forfaiting transaction:
The benefits to the exporter from forfaiting include eliminating political, transfer, and commercial risks and improving cash flows. The benefit to the forfaiter is the extra margin on the loan to the exporter.
As of May 2010, the IFA's board members were: Paolo Provera, Sean Edwards, Charles Brough, Paul Langford, Sema Zeyneloglu, Demetris A. Zouzoukis, Daniel Schär, Lixin Guo and Brendan Herley.
Trade finance
Trade finance is related to international trade.While a seller can require the purchaser to prepay for goods shipped, the purchaser may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support...
, forfaiting involves the purchasing of receivables from exporters. The forfaiter takes on all risks involved with the receivables.Where are the independent and verifiable cites for this? Links? The forfaiting operation is a transaction-based operation (involving Exporters) involving the sale of one of the firm's transactions. Factoring
Factoring (finance)
Factoring is a financial transaction whereby a business job sells its accounts receivable to a third party at a discount...
is also a financial transaction involving the purchase of financial assets, but Factoring
Factoring (finance)
Factoring is a financial transaction whereby a business job sells its accounts receivable to a third party at a discount...
involves the sale any portion of a firm's Receivables.J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, "The Vest Pocket CPA", Wiley, 2005.
The characteristics of a forfaiting transaction are:
- Credit is extended to the exporter for a period ranging between 180 days to seven years.
- Minimum bill size is normally US$ 250,000, although $500,000 is preferred.
- The payment is normally receivable in any major convertible currency.
- A letter of credit or a guarantee is made by a bank, usually in the importer's country.
- The contract can be for either goods or for services.
At its simplest the receivables should be evidenced by a promissory note, a bill of exchange, a deferred-payment letter of credit, or a letter of guarantee.
Three elements relate to the pricing of a forfaiting transaction:
- Discount rate, the interest element, usually quoted as a margin over LIBOR.
- Days of grace, added to the actual number of days until maturity for the purpose of covering the number of days normally experienced in the transfer of payment, applicable to the country of risk.
- Commitment fee, applied from the date the forfaiter is committed to undertake the financing, until the date of discounting.
The benefits to the exporter from forfaiting include eliminating political, transfer, and commercial risks and improving cash flows. The benefit to the forfaiter is the extra margin on the loan to the exporter.
Professional association
The International Forfaiting Association was founded in 1999 as the worldwide trade association for the forfaiting industry with cash contribution of the VEFI (VEFI, founded in 1978 and chaired since 2003 by Mr Sal Chiappinelli is the oldest forfaiting association of the world). Its purpose is to develop business relationships and assist other forfaiting-related organizationsAs of May 2010, the IFA's board members were: Paolo Provera, Sean Edwards, Charles Brough, Paul Langford, Sema Zeyneloglu, Demetris A. Zouzoukis, Daniel Schär, Lixin Guo and Brendan Herley.