Forfaiting or the purchase of export receivables under a letter of credit is an instrument of financing of the exporter (beneficiary) based on the sale of receivables under a deferred payment documentary letter of credit.
Forfaiting or the purchase of export receivables under a letter of credit is an instrument of financing of the exporter (beneficiary) based on the sale of receivables under a deferred payment documentary letter of credit. The condition for the purchase of receivables is the fulfilment of the letter of credit conditions by the exporter. The bank then pays the exporter the discounted value of the receivable reduced by the purchase costs.
BENEFITS:
Purchase of receivables without recourse; |
Improves the liquidity and cash flow of the exporter; |
Financing without taking on new debt and under more favourable terms; | |
Without risk of default and exchange rate risk; | |
Interest is borne by the bank. |