D-1-3- Forfaiting

Payment processing is one of the main preoccupations of companies with international transactions. Doing business is important, but compensation is essential. Esandis offers you free training space dedicated to international transactions, and all the skills you need to become an export or import manager. Our objective is to provide you an understanding of the importance of the payment component of an international transaction.

Companies are always looking to find new solutions for international protection and funding. There are many payment technique solutions, and most involve the importer's and/or the exporter's bank, e.g. the documentary credit. Another solution, forfaiting, is widely used and, like the other techniques, has its advantages and drawbacks.

1-3-1- Forfaiting : definition

Forfaiting is a proven payment technique that provides the exporter short-term, fixed-rate funding for international transactions. Forfaiting is more than credit insurance coverage, and can even be considered fixed-price factoring or a fixed-price discount. Like factoring, forfaiting protects against currency risk. This method of payment is of interest to both importers and exporters.

1-3-2- Forfaiting : the conduct

Forfaiting is conducted in seven steps and involves four stakeholders: the forfaiter, the exporting company, the exporter's bank and the importing company.

1-3-3- Forfaiting: purchase of receivables

The forfaiter commits to buy trade receivables from its client, the exporter. Trade receivables could take the form of drafts or bank-endorsed promissory notes. The receivables are sold without recourse for the forfaiter in the event of debtor default. Forfaiting assigns receivables a shelf life of one month to 10 years, and are accompanied by a bank guarantee. The exporter is paid cash in exchange for receivables, and is therefore protected against all risks.

1-3-4- Forfaiting: variations

Forfaiting is an international payment technique that offers variations in order to adapt to present-day trade. We can mention here the "forfaiting in trust" or the forfaiting "with a discounted bill".