How does Forfaiting compare with officially supported export credits?
An interesting comparison may be made between Forfaiting and official supported credits, (through the country's Eximbank).
It should be remembered, that Forfaiting is a complementary method of finance to officially supported export credits. Nevertheless, Forfaiting does offer exporters some real advantages over EXIM.
Forfaiting allows the exporter greater flexibility in structuring a deal, particularly where goods are being supplied from a country where EXIM requirements on local and foreign content cannot be met under existing regulations.
Further, if a buyer insists on 100 per cent financing (only 85 per cent finance is available under EXIM rules), then Forfaiting could supply the remaining l5 per cent.
Typically, unless it is a very large or complex deal, a Forfaiter will be able to indicate within a couple of days whether financing is available or not. It may take longer for EXIM to come through with a commitment.
In addition, Forfaiting is 100 per cent without recourse. Once the Forfaiter has bought the paper, the exporter can collect the cash and even forget the entire transaction. Finance can also be obtained for countries that are off cover from official export credit insurance (and there are no insurance premiums to pay).
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