Forfaiter


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Related to Forfaiter: forfeiting

Forfaiter

Purchaser of promises to pay issued by importers.

Forfaiter (Primary)

An individual or financial entity that arranges a forfaiting transaction directly with an exporter and then holds or sells on the payment obligations of the importer/ guarantor.

Forfaiter (Secondary)

An individual or financial entity that buys or sells the payment obligations of the importer/ guarantor.

Forfaiting

In international trade, the selling of an exporter's receivables for a particular transaction. It is similar to factoring except in scope. While a company sells all of its accounts receivable in factoring, an exporter only sells one receivable for one, perhaps high risk, transaction. In forfaiting, the buyer is known as a forfaiter, and assumes all the risks associated with collecting the receivables. Generally, the exporter forfaits the receivable at a discount. This improves cash flow but reduces income.
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This vacuum leaves the door open for indigenous banks to fill the gap and encourage their clients wishing to import goods into Africa to push would-be exporters into the arms of forfaiters.
Is forfaiting the answer for Africa?
The purpose of these specific questions is to determine the price for the liquidation of the receivable, and how much flexibility the exporter and the forfaiter have in crafting a sales and financing proposal that will meet the needs of the prospective buyer.
It is critical that the forfaiter be involved in this preliminary process, before any pricing discussions are held between the exporter and buyer.
Once a forfaiter has determined a prospective transaction to be acceptable, he issues an indication of interest detailing the price for the specific receivable; given the tenor, amount, credit and country risks.
As the contract negotiations take shape, the exporter should keep the forfaiter well informed of changes, delays, or any other events that may impact the financial modeling.
Forfaiting as Risk Mitigation and Sales Tool
The cost of forfaiting a transaction is based on the discount rate used by the forfaiter.
This will require the upfront payment to a forfaiter of a non-refundable option fee.
A forfaiter can "tailor-make" a deal to create the right size of transaction with appealing maturities to satisfy the end investor.
Those risks assumed by a forfaiter include: country/political risk, interest rate risk, foreign currency risk, documentary risk, commercial risk (which may be corporate, bank or even sovereign risk) and collection risk.
Once an indication is provided by a forfaiter, the forfaiter can additionally quantify the actual amount of the financing based upon prevailing market interest rates.
In exchange for the payment, the forfaiter takes on the responsibility for claiming the debt of the importer.
By talking to a forfaiter early, an exporter might be able to include some of the financing costs in its price.
Forfaiting: a European customer finance technique comes to the U.S

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