Forfeiting

Contains the full information regarding forfeiting.

1. -M.ABDUL LATHIF cmrit FORFEITING

2. MEANING: F orfeiting is derived from a French word “Forfait” which means to surrender of rights. The purchasing of an exporter's  receivables  (the amount importers owe the exporter)  at a discount  by paying cash. The forfeiter , the purchaser of the receivables, becomes the entity to whom the importer is obliged to pay its debt

3. Process: Forfaiter commits to purchase deal from the Exporter. Commercial contract between Exporter & Importer. Delivery of goods. Bank give guarantee. Importer hands over the documents to Exporter. Exporter delivers documents to the Forfaiter. Forfaiter pays cash ‘without recourse’ to the Exporter.

4. Process : ( contd ….) Forfaiter presents documents to Bank at maturity for payment Importer repays Bank at maturity. Bank repays to the Forfaiter at maturity.

5. CHARACTERISTICS OF FORFAITING Converts Deferred Payment Exports into cash transactions, providing liquidity and cash flow to Exporter. Absolves Exporter from Cross-border political or conversion risk associated with Export Receivables. Finance available upto 100% without recourse. Acts as additional source of funding and hence does not have impact on Exporter’s borrowing limits. It does not reflect as debt in Exporter’s Balance Sheet. Provides Fixed Rate Finance and hence risk of interest rate fluctuation does not arise.

6. CHARACTERISTICS OF FORFAITING ( contd ….) Exporter is freed from credit administration. Provides long term credit unlike other forms of bank credit. Saves on cost as ECGC Cover is eliminated. Simple Documentation as finance is available against bills. Forfait financer is responsible for each of the Exporter’s trade transactions. Hence, no need to commit all of his business or significant part of business. Forfait transactions are confidential.

7. BENEFITS: Forfaiting eliminates risks(political, transfer and commercial risk). Improves cash flow by providing ready liquidity against transactional documents. Forfaiting allows you to discount long term debts too. Enhances Competitive Advantage Increases Speed and Simplicity of Transactions

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