A type of export credit
Forfeiting (FORFEITING) is a non-recourse letter of credit financing, also known as the buyout, the package to buy the note, the English name for "Forfeiting", from the French "a Forfeiting", from the French "a forfait", originally "give up the right" meaning. Chinese transliteration "Forfeiting". Forfaiting is in the deferred payment of large-scale equipment trade, the exporter will be accepted by the importer, or by a third party guarantee, the period of half a year to five or six years of the forward bills of exchange, non-recourse sold to the exporter's location of the bank or a large financial company, in advance of a form of capital financing, it is a type of export credit.
Simply put: it is a forward letter of credit financing business, it is very similar to discounting can get money in advance. But there is a difference, discounting is recourse.
An example:
A factory is a production company, foreign customers order, but his payment method is 30 days of forward letters of credit, meaning that 30 days after the payment can be obtained, but he urgently need capital turnover, this time you can take the relevant documents to the bank, the bank will say: I buy your accounts receivable, but you have to give me interest. This time a factory said: Okay, but then you can not find me trouble (that is, no recourse) This is called Fulfillment.
Forfaiting business is a high-risk, high-yield business, for the bank, can bring considerable gains, but the risk is also greater; for enterprises and manufacturers, goods out of the hands of the immediate payment of goods, occupying a very short period of time, no risk to speak of. Therefore, the bank to do this kind of business, the key is to choose a very good credit import bank. When the exporting bank as a package buyer, the creditor's certificate must be accepted by the package buyer's bank or other institutions unconditionally and irrevocably bonded or provide independent guarantee.
Acceptable forms of claims for Forfaiting business include: letters of credit, bills of exchange, promissory notes secured by payment guarantees/standby letters of credit, claims insured by export credit insurance, claims guaranteed by international organizations such as the International Finance Corporation (IFC), and other acceptable debt instruments.
Forfaiting, in addition to earning money, can also be resold, creating a developed secondary market for forfaiting.
Forfaiting Advantages
For exporters: financing convenience, improve cash flow, save management costs, early tax rebates, avoid all kinds of risk (exchange rate, credit); other advantages: increase trade opportunities, realize the price transfer.