Forfaiting ( English forfaiting from French à forfait - in its entirety, total amount) - the operation of a financial agent (forfeiter) acquiring a commercial obligation of a borrower (buyer, importer ) to a creditor (seller, exporter ). The operation is a specific form of lending to trade operations. The main condition for forfeiting is that all the risks associated with a debt obligation are transferred to the forfeiter without the right to turn on the seller’s obligations.
Content
Advantages and disadvantages of forfeiting
Benefits
- forfeiter takes all risks upon itself;
- there is a secondary market for forfeiting securities where the debt can be sold, that is, the first forfeiter sells, a second, third, etc. appears;
- the debt can be split up and each part of the debt can be issued as a separate bill of exchange , it is convenient, if there is a need for financial resources, in accordance with its size, not all debt is sold, but only part of it;
- forfeiting provides a flexible payment schedule, including the possibility of granting a grace period.
Disadvantages
- The need to prepare documents in such a way that there is no recourse to the exporter in the event of a bankruptcy of the guarantor, as well as the need to know the legislation of the importing country, which determines the form of bills, guarantees and aval.
- The possibility of difficulties in case the importer offers a guarantor who is not satisfied with forfaiter.
- Forfeiter margin is higher than with ordinary commercial lending.
Types of forfeiting securities
Forfeiting securities are promissory notes and transfer notes. Unlike traditional accounting of bills of exchange, forfeiting is used in the supply of equipment for large amounts from six months to eight years in foreign trade transactions, turning the export transaction with a deferred payment into cash and crediting the receivables of other countries in which it is impossible to obtain state export credits or guarantees on them . Forfeiting is also used when the exporter refuses to provide long-term loans to certain countries. Forfaiting, therefore, enables small and medium-sized enterprises to enter into transactions that exceed their financial capabilities, as they can gradually sell their long-term requirements for cash.
Literature
- Popova E. Yu., Ognev D.V. Comparative characteristics of forfeiting and other forms of financing innovative activity // Bulletin of Irkutsk State Technical University. - 2014. - Vol. 5 (88) . - ISSN 1814-3520 .
- Prigogine V. L., Popova E. Yu. The use of investment tools for foreign trade operations // Bulletin of Irkutsk State Technical University. - 2015. - Vol. 6 (101) . - ISSN 1814-3520 .