What information does a Forfaiter need?
The Forfaiter needs to know who the buyer is and his nationality; what goods are being sold; detail of the value and currency of the contract; and the date and duration of the contract, including the credit period and number and timing of payments (including any interest rate already agreed with the buyer). He also needs to know what evidence of debt will be used (either promissory notes, bills of exchange, letters of credit), and the identity of the guarantor of payment (or avalor).
What documents are required by the Forfaiter from the exporter?
Usually required are:
- Copy of supply contract, or of its payment terms
- Copy of signed commercial invoice
- Copy of shipping documents including certificates of receipt, railway bill, airway will, bill of lading or equivalent documents
- Letter of assignment and notification to the guarantor
- Letter of guarantee, or aval The aval is the Forfaiters' preferred form of security of payment of a bill or note. For an aval to be acceptable, the avalizing bank must be internationally recognized and credit worthy.
The aval may be placed on the face of the note. Sometimes a guarantee is issued instead of an aval, particularly in some countries that may not recognize the aval as legally binding. Usually it is provided in a separate letter. Alternatively, the Forfaiter may be happy to accept a blank endorsement by a guarantor. Standby letters of credit may also be used.
The most important point to remember is that any guarantee should be IRREVOCABLE, UNCONDITIONAL, DIVISIBLE, and ASSIGNABLE.
Once the Forfaiter has all this information, indications or quotations can be given immediately by phone or fax. A commitment can be given prior to contract or delivery, and options can be given to assist the exporter in the final negotiation of the contract.
What documents are required by the Forfaiter from the exporter?
Many U.S. exporters prefer to have the importer's bank open a letter of credit to cover their debt under a supplier's credit. The bank issues a deferred payment letter of credit that specifies a series of one or more time drafts which the bank will accept (guarantee) upon presentation of the usual documents required by an LIC. The letter of credit does not have to be transferable, or confirmed by the advising bank in the exporter's country; but it must be subject to the Uniform Customs and Practice for Documentary Credits (UCPDC) of the International Chamber of Commerce, Paris (UCP 500).
Promissory notes or bills of exchange (or drafts) are actually the most commonly Forfaited debt instruments. Under a Forfaiting agreement, a promissory note or bill of exchange/draft is issued for each installment of the supplier's credit thus documenting the existence of a claim of the exporter on the importer that is totally abstract: that is, it is unconditional irrevocable, and divorced from the underlying trade transaction.
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