The emergence of the forfaiting market is determined by changes in the structure of the global economy that occurred in the late 50s and early 60s, when the market for the seller of manufactured goods was gradually transformed into the market for the buyer of these goods. The significant development of international trade was accompanied by an increase in the growth trend of importers’ demands to extend the duration of the traditional 90-180-day commercial loan. This time is characterized by a decrease in the level of customs confrontation, which was the result of post-war depression. The revival of new relations between countries Western and Eastern Europe and the growing importance in world trade of the countries of Asia, Africa and Latin America have created many difficulties, primarily among Western European exporters. Moreover, the emergence of these new markets occurred at a time when existing banks were not able to offer the services expected by exporters. Thus, in response to the unmet and ever-growing demand for international loans, forfaitered funds appeared. Forfaiting is a similar factoring operation. The difference of the first is the unicolorous operation related to the collection of funds by reselling the acquired rights to goods and services.
Among the largest banks operating in the forfaiting market, Credit Suise, Switzerland, became the pioneer among the largest banks forfaiting.
Forfaiting is a rapidly growing industry requiring the creation of a special unit within the traditionally functional structure of the bank. In addition to the growing volume of transactions, there was a need to expand activities in other areas and offer financing services outside the bank. Since 1965, a specialized organization dedicated exclusively to forfaiting, Financ AG in Zurich, a branch of the largest Swiss bank, began operations. Switzerland’s forfeiting championship has not yet been surpassed, although forfaiting operations have extended to other financial centers in Western Europe. Forfaiting is a term commonly used to indicate the purchase of obligations arising in the process of delivery of goods and services (mostly export operations) without turnover to any previous debtor, repayment of which falls on for some time in the future.
Thus, forfaiting (from fr. A forfait – in its entirety, total) is the provision of certain rights to exchange for cash. In foreign trade, it means the purchase (without recourse to the exporter) of bills or other requirements arising from commodity deliveries by a special credit institution (forfighter) in providing sufficient security, i.e. the forfeiter does not have the right to make any claims against the forfeiter (exporter) in case of non-payment of the importer, taking on, in fact, all types of risks. The term of claims purchased by the importer depends on his creditworthiness and is limited to 2 – 5 years, sometimes up to
7 years. The minimum amount of requirements accepted for for forfaiting is from 100 thousand to 5 million Swiss francs. The forfeiting rate is based on market demand and supply and significantly exceeds the usual loan rates, since the forfeiter, as noted above, assumes almost all the risks. The bills accepted for forfaiting must be avalued, while other requirements must have a bank guarantee. Forfaiting is usually used in the supply of equipment for large amounts with long installment payments (from 6 months to 5 – 7 years). At the same time, the forfeiter acquires debt claims minus interest for the entire period, thus turning the export credit transaction into cash, which is beneficial for the exporter. The forfaiting operation diagram can be depicted as follows (Fig. 15).
After invoicing the exporter (1), the importer pays with a rolled (2.3) bill (4). Having received a bill from the importer, the exporter transfers it to the forfeiter (5) in exchange for cash payment (6).
Forfaiting costs include the following points:
the costs of obtaining an aval, which the importer usually bears. If he refuses, then the exporter is forced to take on these expenses, since without a bank guarantee the forfeiter will not buy the requirements; expenses associated with the risk of the buyer’s country, offered by the forfeiter in the form of a risk premium ranging from 0.5 to 6% per annum; cash mobilization costs depend on rates on the European market; management expenses of 0.5% per annum.
Total forfaiting costs are calculated by discounting the amount of the claim. Despite the relatively high costs of transferring risks to the forpheater, the forfeit player, based on strategic considerations, covers them from a number of advantages:
increase in liquidity, since claims are immediately paid in cash; exemption from a number of financial and commercial risks: credit, risk of changes in exchange rates, risk of non-payment, etc.; simplification of the balance due to its partial exemption from receivables; increase in creditworthiness; lack of control over repayment of the loan, etc.