Forfaiting
Forfaiting : Forfaiting is a form of supplier credit in which an exporter surrenders possession of export receivables, which are usually guaranteed by a bank in the importer's country, by selling them at a discount to a "forfaiter" in exchange for cash These instruments may also carry the guarantee of the foreign government in a typical forfaiting transaction, an exporter approaches a forfaiter before completing a transaction's structure Once the forfaiter commits to the deal and sets the discount rate, the exporter can incorporate the discount into the selling price Forfaiters usually work with bills of exchange or promissory notes, which are unconditional and easily transferable debt instruments that can be sold on the secondary market Three primary differences between export factoring and forfaiting are:- Factors usually want access to a large percentage of an exporter's business, while most forfaiters will work on a one-shot basis; -Forfaiters generally work with medium and long-term receivables (180 days to seven years), while factors work with short-term receivables (up to 180 days) Payment terms usually reflect the type of product involved: forfaiters usually work with capital goods, commodities, and large projects; factors work mostly with consumer goods: Most factors do not have strong capabilities in developing regions of the world where legal and financial frameworks are inadequate and credit informaiotn is not readily available through affiliate factors However, since forfaiters usually require a bank guarantee, most are willing to work with receivables from these countries See: Factoring
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