Benefits of Forfaiting

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Benefits of Forfaiting

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:

• Receipt of immediate payment while extended terms to large international customers.
• Providing a method of doing business in countries where credit risk would otherwise be too high.
• Removing political, credit, and currency (exchange) risk.
• Providing financing for 100% of the contract or sale value. 
• Increasing speed and simplicity of international transactions.
• Relieving the seller of the burden of collections in foreign countries.
• Complimenting other forms of trade finance (such as EximBank).  Forfaiting can be used to finance those portions of trade not secured by EximBank guarantees.
• Non-recourse benefits. Forfaiting is 100% non-recourse to the seller.

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.