FORFAITING goes beyond credit insurance cover provided by government and private institutions, which usually require partial risk retention by the exporter, and which delay payments in the event of the exporter's default. Forfaiting provides the exporter with cash at the time of shipment, and on a non-recourse basis.

Generally, the export receivables are guaranteed by the importer's bank. This allows the purchaser to buy the risk "without recourse" to the exporter, thus taking the transaction off the exporter's balance sheet. This can have important benefits in terms of its positive effects on the exporting company's key financial ratios.

Typically the importer's obligations are evidenced by accepted bills of exchange or promissory notes, and the bank adds its guarantee to the paper by way of a "per aval" endorsement. This process is known as avalization. Equally the receivable may take the form of a term draft drawn under a documentary letter of credit.

Forfaiting is often applied where the exporter is selling capital goods, and having to offer periods of credit up to five years. The forfaiter will then quote a price being a discount rate to be applied to the paper, calculated on the underlying cost of funds (LIBOR) plus a margin.

It is usually possible to have a fixed price quoted for a shipment taking place up to six months forward, and the exporter is thus able to lock into his profit from the outset.

There is an active secondary market for avalized export paper in London, and Mezra Finance accesses this market on behalf of its clients, to seek financing solutions for "difficult" markets.

Minimum transaction size for this inter-bank forfaiting market is approximately US$ 250,000 - but sometimes smaller deals can be accommodated.

• Removes credit risk
• Expedites cash flow
• Enhances balance sheet ratios
• 100% financing
• Simple documentation (See also our PowerPoint presentation "What is Forfaiting?" for details of documentary requirements.)
• Fast response

To see how forfaiting can expedite your cash flow, apply on-line with our Forfaiting Inquiry Form

Download our Current Country List - in pdf format - showing maximum credit terms available in the London market, against prime local bank import letters of credit, or guarantees.

Contact us:-