FORFAITING

Benefits of Forfaiting

In many countries, particularly in the emerging markets, providing extended payment terms will greatly improve the chances of winning a contract. Obviously, most exporters would much prefer being paid in cash, without exposing themselves to the costs and risks associated with providing financing to their clients. Forfaiting allows the exporter to meet these needs without taking any additional risk. 

With Forfaiting, the exporter can provide deferred payment financing as a part of the sales proposal or quotation, thereby anticipating the buyer's needs. Furthermore, by focusing the negotiation on the credit terms offered, the exporter may face substantially less pressure to reduce the price. That in turn, may mean better sales margins and higher profitability. 

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However, the most significant advantage offered by forfaiting is its usefulness as a selling tool, particularly for sales into countries where buyers lack the resources to pay cash against delivery. For buyers in this segment of the market, the ability to defer payments will affect their choice of supplier. By integrating the financing solution into the sales contract, Forfaiting helps exporters clearly define a strategy that can increase the probability of winning a contract, improve cash-flow and eliminate the risk of a payment default, while protecting their profit margin.

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While a typical Forfaiting facility relies on a letter of credit drawn on a decent bank or avalised (confirmed) by one, the Forfaiter may rely on the strength of the buyers balance sheet or a guarantee from a government backed export credit provider.