In international trade, forfaiting is a simple, flexible and effective financing method. Because it is risk-free and low-cost, it can speed up the flow of funds and increase product sales. Improving competitiveness has been increasingly used around the world.
Forfaiting refers to the non-recourse purchase of credit notes from the exporter (supplier) by forfaitinghouse (credit instruments), including time drafts under the letter of credit payment method, promissory notes issued by the importer (buyer) and other negotiable and transferable debt instruments (freelynegotiable instruments). The so-called non-recourse means that if the importer refuses to pay for the goods after receiving the goods, the exporter has no right to recover the payment from the importer. Because the exporter has transferred this right and obtained payment from For*Ting Company.
For*Ting Company pays the exporter the payment for goods and obtains the bill after deducting interest in the form of discount for the entire credit period at a fixed agreed interest rate, that is, Undertaken full responsibility for collecting the arrears from the importer. These debt notes receivable (debtinstruments) are issued by the exporter, accepted by the importer, and then signed by the guarantor on the back of the note to guarantee payment. This guarantee is unconditional and irrevocable and is usually provided by the importer's bank. If the importer has strong funds and good reputation, there is no need to add a guaranteed payment signature on the back of the bill. After acquiring these debt notes receivable, Fording Company can keep them and collect the debt from the importer when they mature; it can also sell them to other investors without recourse before the notes expire. When the bill matures, the holder must present the bill and claim the money.
For*Ting Company provides credit for forward capital goods (capitalgoods) financing of 5-10 years at fixed interest rates, and 1-5 years Medium-term financing, in recent years there has also been short-term financing business of 90-180 days. The scope of application has also expanded from capital goods to general commodities, small projects, service contracts and lease contracts, etc. However, the amount of each transaction shall not be less than US$100,000.
Although exporters can finance the entire amount of the sales (supply) contract, in general, when the sales (supply) contract is signed, they Can only getA deposit of 10-20% of the same amount is required. After the contract goods are shipped, you can get a cashier's check or money order proving the remaining 80-90% of the payment receivable. The face value of these promissory notes or bills of exchange already includes the interest factor agreed between the buyer and seller of the goods. A series of promissory notes or bills of exchange issued to document multiple payments over an agreed credit period. For example, for a two-year credit with semi-annual repayments, four cashier's checks or bills of exchange would be issued, payable on the 6th, 12th, 18th and 24th months respectively. The discount rate for the bill can be determined when the promissory note or bill of exchange is officially transferred, or it can be determined 12-18 months in advance. Exporters can incorporate discounted costs into the selling price of their products.
In order to reduce costs, many exporters are willing to use forfaiting brokers (forfaiting brokers) for export financing because these brokers maintain relationships with many forfaiting companies. In order to make the transaction comply with the requirements of the Ford market, the broker must repeatedly negotiate with the exporter. In return, the broker charges a one-time fee of 1% of the principal amount of the transaction. Exporters can include this fee into the sales price.
