What is Forfaiting?

Forfaiting is a method of trade finance whereby Credit Europe Bank N.V. purchases, on a without recourse basis debt obligations arising from the supply of goods and/or services.

In a forfaiting transaction, the exporter agrees to assign its rights to claim for payment of goods or services delivered to an importer under a contract of sale, in return for a cash payment from Credit Europe Bank N.V.

In exchange for the payment, Credit Europe Bank N.V. takes over the exporter's debt instruments and assumes the full risk of payment by the importer. The exporter is thereby freed from any financial risk in the transaction and is liable only for the quality and reliability of the goods and/or services provided.

Forfaiting is a tailor-made financing solution designed according to the needs of the exporter which can be described as follows;

• 100% financing of the goods without recourse to the importer. 
• The debt is usually evidenced by Bills of Exchange, Promissory Notes or a Letter of Credit , Stand by L/C
• Payment is guaranteed by a local bank in the form of aval, or bank guarantee or l/c confirmation etc.
• Amounts financed can range from US$100,000 to US$100 million or more
• Interest rates can be agreed on a fixed rate, although it can also be arranged on a floating interest-rate bearing basis. 
• Fast conclusion of transactions
• Tailor-made financing solutions;
• Simple documentation requirement;
• Relieves the exporter from administration and collection problems.

The advantages of forfaiting for the exporter are;

• Since the transactions are without recourse; fully eliminating political, transfer and commercial risk of the importer,
• Protects the exporter from future interest rate increases or exchange rate fluctuations
• Gives the ability to the exporter to provide longer payment terms and yet receive the proceeds cash.
• Enables the exporter to do business in countries where the country  risk would otherwise be too high.
• The balance sheet of the exporter does not carry accounts receivable, bank loans or contingent liabilities.
• No administrative and legal expenses, that normally accompany other financing arrangements
• Importer receives additional credit through forfaiting from the supplier/exporter
   

The advantages for the investing bank are;

• Maximum use of credit lines; not directly used credit lines can be utilized in the forfaiting market
• Liquid assets; in case of need the credit lines can be freed in a short term 
• Attractive Yield,; trade related assets have better returns than syndicated loans
• Ease and Simplicity of Documentation; simple and quite uniform documentation which eliminates legal costs each time and makes fast bookings possible
• Flexibility in terms of tenor: Transactions may vary from 6 months to 5 years

Through forfating banks may offer to their customers more possibilities in terms of

• Country risk
• Bank risk
• Amount
• Maturity
  

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