Forfeiting is the process of purchasing a company's export receivables at a discount for cash. It involves an exporter selling its receivables from export sales to a forfeiting company, which then receives payment from the importer. This converts deferred export payments into immediate cash for the exporter, while absorbing the risks normally borne by exporters such as political and currency risk. Forfeiting provides exporters with liquidity and freedoms them from credit administration and risk, while absorbing the importer's risk for the forfeiting company in exchange for a discount on the receivables.

1. - M . A B D U L L A T H I F
C M R I T
FORFEITING

2. MEANING:
•Forfeiting is derived from a French word “Forfait”
which means to surrender of rights. The purchasing
of an exporter's receivables (the amount importers
owe the exporter) at a discount by paying cash. The
forfeiter, the purchaser of the receivables, becomes
the entity to whom the importer is obliged to pay its
debt

3. PROCESS:
1. Forfaiter commits to purchase deal from the
Exporter.
2. Commercial contract between Exporter &
Importer.
3. Delivery of goods.
4. Bank give guarantee.
5. Importer hands over the documents to Exporter.
6. Exporter delivers documents to the Forfaiter.
7. Forfaiter pays cash ‘without recourse’ to the
Exporter.

4. PROCESS: (CONTD….)
8. Forfaiter presents documents to Bank at maturity
for payment
9. Importer repays Bank at maturity.
10.Bank repays to the Forfaiter at maturity.

5. CHARACTERISTICS OF
FORFAITING
• Converts Deferred Payment Exports into cash transactions,
providing liquidity and cash flow to Exporter.
• Absolves Exporter from Cross-border political or conversion risk
associated with Export Receivables.
• Finance available upto 100% without recourse.
• Acts as additional source of funding and hence does not have
impact on Exporter’s borrowing limits. It does not reflect as debt
in Exporter’s Balance Sheet.
• Provides Fixed Rate Finance and hence risk of interest rate
fluctuation does not arise.

6. CHARACTERISTICS OF
FORFAITING (CONTD….)
• Exporter is freed from credit administration.
• Provides long term credit unlike other forms of bank credit.
• Saves on cost as ECGC Cover is eliminated.
• Simple Documentation as finance is available against bills.
• Forfait financer is responsible for each of the Exporter’s trade
transactions. Hence, no need to commit all of his business or
significant part of business.
• Forfait transactions are confidential.

7. BENEFITS:
• Forfaiting eliminates risks(political, transfer and
commercial risk).
• Improves cash flow by providing ready liquidity
against transactional documents.
• Forfaiting allows you to discount long term debts too.
• Enhances Competitive Advantage
• Increases Speed and Simplicity of Transactions

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