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Sunday, May 20, 2018

Forfaiting

The sale of goods and/or the provision of services, both considered as "order", often results in an extension in payment. The term of extension is useful to classify the payment, as defined as:

  • SHORT TERM: when the extension of payment does no exceed twelve months.
  • MEDIUM TERM: when the extension of payment exceeds twelve months but not twenty-four.
  • LONG TERM: when the extension of payment exceeds twenty-four months.

The extension of a payment, usually granted to their own customers and used as a negotiation gimmick or commercial lever so that you can acquire the order, generates a credit; it is a common practice for many companies and in every industrialized Country, and is also used in the context of export.

The extension of payment is primarily used in case of export:

  • Capital goods.
  • Technologies.
  • Systems.
  • Infrastructure laying.
  • Other.

Who grants the extension of payment, by whatever term, offers the counterpart an effective solution to pay the order by instalments. Clearly the need to collect as soon as possible, or at least within a relatively short period, the amount resulting from the order. 

To those who want to turn their expiry credit into a sight credit is possible to envisage an alternative instrument to the traditional ones, and, therefore, bypassing the recurrence to self-financing or the usual banking anticipation, "Forfaiting" represents the most capable financing instrument

"Forfaiting" is typically used in the export that is linked to the operation of credit off (so to the anticipation of the amount of credit, net of interests and commitment fees). The "Forfaiting" consists of selling of the "title" of credit (bills of Exchange, documentary letters of credit, etc.) without any recourse or pre-arranged. 

The market of – forfait – developed in Switzerland since the 50s and today it is used in the International markets, especially in London, where such an instrument is more widespread today. Forfaiting includes four participants:

The "Forfaiting" is a tool for short-term financing ideal for freeing the Subject Exporter of all the risks associated with the creditworthiness of the buyer, the foreign bank guarantor and the debtor country. It allows the Subject Exporter to mobilize immediately its own credit/s or to cash the sum of the order even before its shipment or delivery, so the possibility of getting the commitment to the disposal at a fixed rate even before the signing of the contract related to the order itself. This enables the Subject Exporter to grant its customers more favourable terms of payment and to be so even more competitive.

The "Forfaiting" provides that debt securities are issued in currencies of strong exchange, for example: U.S. Dollar Euro, Yen, Swiss Francs. In order to have the Financial Institution to deal with the credit title, it is a good idea that the sum of the license may be substantial and significant. Bright Business Consulting LLP does not take into account debt securities worth less than one million pounds.

The Financial Institution acquires the title of credit without recourse and should be issued by the Banking Institution. The title may be a "bill of exchange" and/or "letter of credit":

  • In case of promissory note must be indicate the endorsement on the back of the title by inserting the clause: without recourse.
  • In case of letter of credit, should be formalized an act for the sale of credit: credit assignment.

Since the liquidation of credit takes the form without recourse, unless the Subject Importer is of primary importance at the international level, the Financial Institution which proceeds to forfeiture will require that the credit is secured by a bank guarantee issued by Banking Institution.

The commitment of the Banking Institution can take two different forms:

  • ENDORSMENT: on the title must be affixed a clear statement followed by the signature of the guarantor Banking Institution.
  • SEPARATE LETTER OF GUARANTEE: to be accepted by the Forfaiter, this document is issued by the guarantor Banking Institution must be irrevocable, unconditional, abstract, transferable and must specify the amount and the expiry date of each title of change.

The operation of "Forfaiting", classified as "credit provider" transaction and also known under the name "supplier credit" and provides considerable advantages attributable to:

  • Treasury financing: improving the liquidity of the Subject Exporter through the immediate taking of loans at maturity, without indebting, without the use of credit lines of the Subject Exporter.
  • Risk coverage: the disinvestment without recourse offers coverage of risks related to the transaction, i.e. the insolvency of the buyer, the risk of exchange rate and political risks of the debtor Country.
  • Business and management benefits: the completion of the commercial transaction with the corresponding financial support, in corporation of the cost of disinvestment in the commercial contract, the failure to use the stipulation of insurance coverage, reduction in the administrative management of outsourcing credits.
  • Easy documentation and quick completion of the transaction: streamlined procedure for the documentation to be produced related to the credit to disinvest and disbursement of the loan is almost immediate.

Many companies do not know about this tool and many other consider it expensive. In truth it is not so, however, the advantages listed above represent the points of strength of the instrument that hardly comes across points of weakness. What is the real limit? Focussing on the Forfaiter so that in reality he may able to absorb the credit instrument and its competitiveness on the applied commission.

Taking for granted the minimum cut, basic pre-requisite, Bright Business Consulting LLP holds a partnership with the most important Financial Institution in London and able to absorb debt securities of major cuts. Bright Business Consulting LLP does for the Forfaiter the whole of the first examination.

It should be pointed out that the costs are closely related and proportionate to the risk.

Bright Business Consulting LLP with the held partnership is the ideal partner to carry out transactions where it is necessary to use "Forfaiting", offering its customers "Warranty & Assistance" in the management and implementation of the transaction.

NOTE TO ITALIAN EXPORTING SUBJECT: chance of getting a contribution from - Italian Society for Companies Abroad - (Simest s.p.a.): financial company on public participation by the majority of shares in the hands of – Cassa Depositi e Prestiti (CDP) –. The contribution to the Subject Exporter is granted on the interests arising from the operation of "Forfaiting" upon the occurrence of certain conditions and the submission of specific request. Bright Business Consulting LLP as company aimed at international services, separately at the transaction of the operation of "Forfaiting", offers its customers "Warranty & Assistance" in relation to the practice of the loan request, the response to which depends on the competent organ of Simest s.p.a.

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58/60 - Kensington Church Street
LONDON - UK - W8 4DB 

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