Forfaiting is a commercial finance technique that attracted growing interest in both the Banking and Diversified Financial sectors and the financial press of export oriented countries over the last years. This is certainly due to the fact that in many cases it has proven to be the most efficient and profitable instrument when it comes to export finance.
Our vision is to introduce successfully and develop the forfaiting market in Greece. Our aim is to familiarize the exporters with the concept and benefits of Forfaiting. Optima Factors S.A. will offer, structure and execute solutions for the export client, taking into account the commercial practices of the counter parties and the global economic conditions at the time of any deal.
Forfaiting as a Commercial Financial Product
- Forfaiting is a form of export commercial finance involving the discount of debt obligations of an importer to an exporter, due at the same futrure date without recourse to the exporter/endorser.
- Forfaiting obligations arise from trade transactions and are evidenced by negotiable financial instrument such as promissory notes / bills of exchange, Letters of Credit according to common International market practices.
- Forfaiting is typically medium-term finance at a fixed interest rate, although it can also be arranged on a floating interest bearing basis and for periods from 6 months to 5 years or more.
- Forfaiting is a flexible product that can easily be modified to suit an exporter’s particular requirements. The main characteristics are:
- 100% of an export contract can be financed (supplier credit)
- The debt obligations of the importer are purchased from the exporter on a without recourse basis, and in most cases are supported by the guarantee (or an "AVAL") of the importer’s bank or the Ministry of Finance in the importing country.
Forfaiting is best suited for higher value exports such as:
- Capital goods
- Consumer durables
- Consultancy and construction contracts
- Bulk commodities
Forfaiting Benefits for the exportersForfaiting converts a credit sale into a cash sale that means no residual risk is left on the books of the exporter.
Removal of the political, commercial, interest rate and exchange rate risks.
Non-Recourse Financing – Off balance Sheet
The trade receivables are purchased without recourse therefore they are completely removed from the exporter’s balance sheet.
Forfaiting requires minimum documentation because of the type of instruments involved, i.e. Promissory Notes, Bills of Exchange and letters of credit and because of their legal transferability by way of endorsement or assignment
Forfaiting improves cash flow while other banking facilities are unaffected. By converting a credit based transaction into a cash transaction, though forfaiting, the balance sheet is burdened by accounts receivable, bank loans or contingent liabilities.
Optima Factors S.A. when negotiating a Forfaiting deal will propose a certain margin above base-rate Libor. This margin will take into account the country, guarantees available, and tenor and will reflect all kind of risks assumed and also the appetite of the international market for such a deal in order to place it in the secondary market.