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For those manufacturers and distributors of goods which are initially entering the world of cross-border trade,
forfaiting, much like international factoring, can solve a multitude of problems associated with international transactions. These include:
Almost half of all world trade is financed or transacted with borrowed money. Forfaiting is a potent tool for financing international trade which can often be used in conjunction with credit guarantees provided through the world’s various export-import banks such as U.S. Ex-Im Bank. In some instances, forfaiting offers advantages over Ex-Im Bank financing.
For small business entrepreneurs with critical capital requirements, forfaiting is often used to bridge the gap left between Ex-Im guarantees (85%) and full payment. With a forfaiting arrangement in place financing the remaining 15% gap, 100% payment can be received by the exporter.
Forfaiting allows the exporter increased options when structuring a deal where Ex-Im Bank’s rigid requirements on domestic content cannot be met under existing regulations. Forfaiting opens door to large transactions (from the small business entrepreneurs viewpoint) and finances one-time single invoice sales.