Mezra Forfaiting
Your international trade finance solution.

WHAT IS FORFAITING?

Forfaiting is a proven method of providing fixed-rate trade finance for export transactions. In recent years, it has assumed an important role for exporters who desire cash instead of deferred payments, especially from countries where protection against credit, economic and political risks has become more difficult.

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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 avalisation. 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 avalised export paper in London, and Mezra 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
* Enhances balance sheet ratios
* 100% financing
* Simple documentation
* Fast response

Please also see our recommended books on forfaiting.

For general information on exporting see exportinfo.org prepared by students, staff, and faculty from the University of Washington Business School.

For a comprehensive glossary of forfaiting terms see The International Forfaiting Association web site.

Trade & Forfaiting Review
Request FREE sample copy in pdf format

Guide to Forfaiting
by Margrith Lutschg-Emmenegger.