Forfeiting was developed to finance medium to long term contracts for capital goods. It is now becoming more widely used in the short term especially where the contracts involve large values. There are specialised finance houses that deal in this business and many are linked to some of the main banks.
This is a form of fixed rate finance which involves the purchase by the forfeiture of trade receivables normally in the form of trade Bills of Exchange or promissory notes, accepted by the buyer with the endorsement or guarantee of a bank in the buyer's country - e.g. an Aval.
The benefits are that the exporter can obtain the full value of his export contract on or near shipment without recourse. The importer on the other hand has extended payment terms at fixed rate finance.
The forfeiture takes over the buyer and country risks. Forfeiting provides a real alternative to the government backed export finance schemes.
This material has been provided courtesy
of Obrico Ltd Global Trade & Finance.
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