Forfaiting is a non-recourse letter of credit financing method, also known as buyout and guaranteed purchase of tickets. Its English name is "Forfeiting", which comes from the French word "a forfait", which originally means "giving up rights". Chinese transliteration "forfaiting". Forfaiting is a form of financing in which the exporter sells the time draft accepted by the importer or guaranteed by a third party with a term of six months to five years or six years to the bank or big financial company where the exporter is located without recourse, so as to obtain cash in advance. This is an export credit.
To put it simply: it is a long-term letter of credit financing business, much like discount, which can get money in advance. But there is still a difference. Discount has recourse.
For example:
A factory is a manufacturing enterprise, and a foreign customer has placed an order, but his payment method is a 30-day usance letter of credit, which means that he can get the payment after 30 days, but he is in urgent need of capital turnover. At this time, he can go to the bank with the relevant documents, and the bank will say: I will buy your accounts receivable first, but you have to give me interest. At this time, a factory said: OK, but you can't bother me then (that is, there is no recourse). This is called forfaiting.
Forfaiting business is a high-risk and high-yield business, which can bring considerable income to banks, but it is also risky; For enterprises and manufacturers, as soon as the goods are delivered, they can get the payment immediately, which takes up short time and is risk-free. Therefore, when banks do this kind of business, the key is to choose import banks with very good credit standing. When the export bank is the merchant's employer, the creditor's rights certificate must be unconditionally and irrevocably guaranteed or provided with independent guarantee by the bank or other institution accepted by the merchant's employer.
Acceptable forms of creditor's rights in forfaiting business include: letter of credit, draft, promissory note guaranteed by payment guarantee/standby letter of credit, creditor's rights guaranteed by export credit insurance, creditor's rights guaranteed by international organizations such as International Finance Corporation and other acceptable creditor's rights instruments.
Forfaiting can not only earn money, but also be resold, thus forming a developed secondary market for Forfaiting.
Forfaiting advantage
For exporters: facilitate financing, improve cash flow, save management fees, apply for tax refund in advance, and avoid various risks (exchange rate and credit); Other advantages: increasing trade opportunities and realizing price transfer.