Wednesday, 6 January 2016

Forfaiting Concept

Forfaiting Concept


Forfaiting primarily is discounting facility offered by bank to the export for discounting the promissory notes issued by the importer/buyer. Forfaiting is used as medium term financing provided by some bank for exports. The process of forfaiting arrangement has been explained below

1.    Some Price is paid Now

Buyer pays some percentage of total prices now, and remaining amount shall be paid by the importer in future, typically in three to five years.

2.    Promissory Notes are Issued

Buyer shall issue promissory notes against future balance payment. Usually these promissory notes are of same amount maturing at different dates. The maturity period vary from 3 month to 1 Year.

3.    Bank Guarantee is Required

Buyer promissory notes are required to be guaranteed by some banks. Some international bank offers such services. In some cases bank guarantee may not be required for reputable importer.

4.    Export will Find forfaiter

Forfaiter is a bank, who is ready to discount the promissory notes of the buyer/import. These promissory notes are discounted using a fixed rate, and export gets the future payment now.

5.    Risk is bear by Forfaiter

Forfaiter is responsible for future risk associated with payment i.e. political risk, foreign exchange risk, collection from availing bank.









No comments:

Post a Comment

Note: only a member of this blog may post a comment.