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算授課教師：XXXInternationalSettlementChapter9Forfaiting1.1DefinitionandContentsofInternationalSettlement

Ininternationalcargotransaction,whenthetransactionamountishugeanddeferredpaymentisadoptedbybothparties,theexporterwillselltheusancedraft,acceptedbytheimporterandguaranteedbythethirdparty,withthematurityfrom6monthsto10yearstotheexporter’sbankorbigfinancialinstitutiononanon-recoursebasis,andgetthepaymentinadvance.Thiskindofpaymentmethodiscalledforfaiting9.1EvolutionandDevelopmentofForfaiting

AftertheworldwarII,inordertorebuildtheirhomegarden,lotsofEuropeancountriesneededtoimportconstructiongoodsanddailyproducts.InordertosettletheforeignexchangeshortagedifficultywhenimportinggrainfromAmerica,theSuezBankinSwissfirstestablishedtheforfaitingbusinessforprovidingfinancingtotheEuropeancountries.In1950s,WestEuropeanmanufacturersofcapitalgoodswereeagertoexporttheirmachinesormachinepartstoEastEuropeancountriesandtheyprovidedcredittothosecountriesandtheforfaitingbusinessdevelopedfurther.

TheWestEuropeanmanufacturerswerewillingtowaitupforfiveyearsorevenmoreforpaymentagainstnegotiableinstrument,whichhadbeenguaranteedbyonestatebankoftherelevantEasternEuropeancountries.However,thedifficultyencounteredbytheWesternEuropeanmanufacturerswerethattheydidnothavesufficientcapitaltosatisfythefinancingdemandofthosebuyers.Underthisconditions,banksfromSwiss,GermanandItalia,takingtheroleofforfaiters,steppedintothisfinancingmarket.Theseforfaitersagreetopurchasethetradereceivablesfromtheexporterforcash,whichinturnallowedthemanufacturerstocontinuetoexpandtrade.

Theessenceoftheforfaitingbusinessistheforfaiterpurchasesthebillfromtheexporterandmakesadvancepaymenttotheexporter.Inordertomakethetradesimple,nomatterthebillisbillofexchangeorpromissorynote,oncetheexporterbecomesthebonafideholderofthenegotiableinstruments,theexportercouldsellittoaforfaiteratadiscountandobtainimmediatepayment.Differentfromgeneralbillpurchasebusiness,theforfaitingbusinesswaswithoutrecoursetotheexporter.Thesecurityfortheforfaiterwastheguaranteeoftheimporter’sbank。

Chinanowhasdevelopedforfaitingbusinessveryfast.Onereasonisthatforfaitingbusinesscanreducerisks,increasecashflows,andtheexportercanconductexportverificationandtaxrebatewhenforfaitingisadopted.Moreandmoreexportersarewillingtouseforfaitingtofinancetheirexports.Anotherreasonisthattheproceduresofforfaitingaresimpleandfavorabletothecustomers,andprofitabletobanks,somoreandmorebanksarewillingtoprovidesuchfinancingtotheircustomers.9.1EvolutionandDevelopmentofForfaitingDefinitionofForfaiting

Forfaitingisaformofdebtdiscountingforexportersinwhichaforfaiteracceptsatadiscountandwithoutrecourserightofpromissorynotes,billsofexchange,orlettersofcreditreceivedfromaforeignbuyerbyanexporter.Maturitiesarenormallyfromonetothreeyears.Thus,theexporterreceivespaymentwithoutriskatthecostofthediscount.

Whendealingwiththeforfaitingbusiness,theexportermusthavealegalpersonstatus,havethelicensetorunimportandexport,haveadomesticorforeigncurrencyaccountwiththeforfaiterandhaveagoodcredit;theforfaitingmustbebasedonarealtradecontractandthiscontractmustbelawful;theimportermustpayininstallmentbydrafts,promissorynotesorsomeotherinstruments.9.2CharacteristicsandDocumentationofForfaiting9.2.1CharacteristicsofForfaiting9.2.1.1FromtheLegalNature,ForfaitingisaContractTransaction

Thebasiclegalrelationshipofforfaitingiscontractrelation,theforfaitercanprovide100%ofinvoicevaluefinancetotheexporter,theexporterwillselltheusanceacceptancedrafttotheforfaiteronanon-recoursebasis.Duringthisprocess,theforfaiterisnotthenormalagentorotherintermediary,itactsasthebuyeroftheforfaitingtransaction,andwilltakealltherightsandresponsibilitiesofthebuyer.

Fromtheviewoftherealpracticeofforfaitingindifferentcountries,thetransactionobjectistheaccountsreceivablenegotiableinstruments.Forfaiterisnotnecessarytobeinvolvedinthetradedisputes.Theforfaitingbusinesswillonlydealwithbillsornotes,whichbearstheimporterorimporterbank’sprimaryliabilitiestopayatmaturity.9.2.1.2TheTransactionObjectofForfaitingisNegotiableInstruments

Therealintentionofforfaitingistodistinguishfromthetraditionalbilldiscountingbusiness,asthebilldiscountingreservestherightofrecoursetotheexporter.Forfaiterhaswaiveduptherightofrecoursetotheexporter,whichguaranteestheexportertoreceivesaferfinance,increasingtheattractivenessofconductingforfaitingbusiness.9.2.1.3TheForfaitingBusinessisConductedontheBasisofNon-recourse

Thoughanytradecanbefinancedbythemethodofforfaiting,normallyonlycapitalgoodswillbefinancedbyforfaiting.9.2.1.4ForfaitingNormallyProvidesFinancingtoCapitalGoods9.2.1.5ForfaitingProvidesMedium-longTermFixedRateFinance

Forfaitingwillprovidefixedratefinance.Thematurityperiodisfrom2to7yearsinternationally,itcanbeeven10yearslong.Indomesticmarket,theforfaiternormallywillprovideshorttermfinance,rangingfrom30daysto180days.9.1EvolutionandDevelopmentofForfaiting9.2.2DocumentationofForfaiting

Inessence,theforfaitingisthenegotiableinstrumentstransaction,althoughtheexactdocumentaryrequirementforforfaitingvariesindifferentcases.Thefollowingitemsinmostcasesareseeninthedocumentationpackage.

Thisisthemostimportantpartsinthedocumentarypackage,evidencingthattheexporterownsaspecificsumofmoneyonaspecificdate.Normallythedebtsownedbytheexporterareevidencedbyunconditional,irrevocableandfreelytransferablebillsofexchangeorpromissorynotes.9.2.2.1EvidenceofDebts

Forfaitersareusuallywillingtofinancethetradetransactioninsteadofpureworkingcapitaloperationfinance.Thus,documentsevidencingthebasictransactionarerequiredtoprovideunderforfaiting.Thesedocumentsincludecommercialinvoice,transportdocuments,andifapplicable,thesalescontractorleasingagreement.9.2.2.2EvidenceoftheCommercialTransaction

Theguaranteeisalegaldocumentindependentoftheunderlyingsalescontractissuedbytheimporterortheimporter’sbank,promisingthepaymentliabilityatmaturity.Theguaranteecantaketheformofaletterofguarantee,anavalorastandbyletterofcredit.9.2.2.3Guarantee9.3CostsofForfaitingBusiness

Foraforfaitingfinance,aforfaiterwillchargecommitmentfeeanddiscountinterestaswellascommissionandothercharges.Ingeneral,forfaiterwillensurethatthebuyer,nottheseller,assumesthechargesinvolvedinaforfaitingbusiness.Sometimes,whencompetitionincreases,exporterswillsharesomeofthecoststomakethetransactionmoreattractivetothebuyers.9.1EvolutionandDevelopmentofForfaiting9.3.1DiscountCharge

Indeterminingthediscountcharge,theforfaitercalculatestheborrowingcostforthecurrencyandlendingperiodofthetransaction,togetherwithamargintocoverthecreditrisk,interestrateriskanddocumentationriskinvolved.9.1EvolutionandDevelopmentofForfaiting9.3.2CommitmentFee

Whenanexporterconcludesaforfaitingcontractwithaforfaiter,theexporterwilldeliverdocumentationtotheforfaiteratafixedfuturedate.Thetimeperiodfromtheforfaitingcontracttransactiondatetothedatetheforfaiteractuallybuysinthedocumentationiscalledcommitmentperiod.Thecommitmentperiodsometimescanevenbesixmonthslong.Thereasonwhythecommitmentfeewillbechargedisthattheforfaitermustpreparethesefundsinadvance.

Thecommitmentfeerateis0.75%~1.5%perannum.Fromthecontractdealingdatetothediscountingdate,commitmentfeewillbepaidmonthly.Ifthecommitmentperiodislessthanonemonth,thisfeewillbecollectedtogetherwiththediscountinterest.9.1EvolutionandDevelopmentofForfaiting9.3.3OptionFee

Beforesigningthesalescontractwiththeimporter,theexporterwillinquiretheforfaiterconcerningthediscountrateandotherrelativecharges.Itisnecessaryfortheforfaitertounderstandthetransactionsituation,offeringanunboundandapproximatediscountratequotationfortheexporter’sreferencetoincreasethesellingprice.Afternegotiation,theforfaiterwillforthesecondtimeofferthefirmofferofthediscountrate.Iftheexportersacceptthisofferwithin24hours,itisfreeoftheoptionfee.Iftheofferisacceptedwithin1~3months,theexporterwillberequiredtosubmittheoptionfee.Theoptionfeerateis0.1%~0.5%.9.1EvolutionandDevelopmentofForfaiting9.3.4DiscountforGracePeriod

Whenthenegotiableinstrumentmatures,theguarantorbankwilleffectpaymentatmaturitydate.Sometimestheforfaiterwillfurthergivetheguarantor2~3daystocollectmoney,andthistimeiscalledgraceperiod.Graceperiodwillalsobecalculatedintothediscountperiod,andtheinterestoccursduringthisperiodwillbecollectedbytheforfaiterfromtheguarantorbank.9.4PartiestoForfaiting9.4.1ExporterTheexporteristhesellerunderthesalescontract.Whentheexporterextendscredittotheimporter,i.e.thegoodsarepaidonadeferredbasis,theexportermayapplyfortheforfaitingbusinessfromaforfaiter.Uponbeingpurchasedbytheforfaiter,theexportermayobtainthevalueinadvanceafterdeductingtheinterestandcommissions.9.1EvolutionandDevelopmentofForfaiting9.4.2Forfaiter

Aforfaiterisusuallyabigbankorabigfinancecompanywiththeabilitytoprovidemediumorlongtermcreditsintheexporter’scountry.Thepurchaseisbasedonthecreditworthinessoftheimporterandtheguarantor.Afterpurchasingthedebtinstruments,theforfaiterbecomesabona-fideholderoftheinstrumentsandhastherighttoclaimpaymentsfromthedraweeorthepayer.Butwhendishonored,theforfaiterhasnorightofrecoursetotheexporter,andwillassumetheriskofnon-paymentbythebuyer.9.1EvolutionandDevelopmentofForfaiting9.4.3Importer

Theimporteristhebuyerunderthesalescontract,andisthepayerofthedebtinstrumentsthattheexporterandtheimporterhaveagreedtousetoevidencethedebt.Theimporterisobligatedtomakepaymentstothebona-fideholderwhentheinstrumentsmature.9.1EvolutionandDevelopmentofForfaiting9.4.4Guarantor

Theguarantorisaninternationallyrecognizedprimebankintheimporter’scountry.Itwillguaranteetheimporter’sobligationofpaymentatmaturityunlesstheimporterisinthefirst-classdebtwithreputation.Normally,theforfaiterwillrequireanirrevocable,unconditionalbankguaranteefromtheguarantor.9.5ProceduresofForfaiting

TheprocedureofforfaitingisexplainedbyChart9.1.Chart

9.1

Procedures

of

Forfaiting①Theexporterrequiresforforfaitingquotationfromaforfaiterandtheforfaiterprovidesaforfaitingproposalfortheexporter.②Theexporterandtheimportersignasalescontract.③Theimporterappliesforaletterofcredittotheissuingbank.④Theissuingbankissuesaletterofcredit.⑤TheadvisingbanknotifiestheL/Ctotheexporter.⑥Theexporterdeliversthegoodstotheimporter.⑦Theexporterandtheforfaitersignaforfaitingcontract.⑧Theexporterpresentsthefullsetofdocumentsincludingthedrafttotheadvisingbank.⑨Theadvisingbankdeliversthefullsetofdocumentstotheissuingbankandrequiresittoacceptdraft.⑩Theissuingbank(acceptingbank)acceptsthedraftanddeliversittotheadvisingbank,meanwhiletheissuingbankdeliversthedocumentstotheimporter.9.6DifferencesbetweenForfaitingand

OtherTradeFinancingMethods9.6.1ForfaitingandFactoringComparison

Generallyspeaking,theforfaitingbringslotsofbenefitstotheimporterandtheexporter.First,theexportercanoffercredittothebuyerandreceivescashimmediatelyupondeliveryofthegoodsorservicesandtheexporter’stwokeyrisks—politicalandcommercialcreditriskscanbeeliminated.

Furthermore,forfaitinghassimpledocumentation,andrapid,flexibledealstructuring,itimprovescompetitiveadvantagetoexporterbyprovidingtheexporterfinancing,facilitatesexpansionofmarketstoriskiercountries.Second,totheimporter,therepaymentcanbetailoredtothebuyer’scashflowprofile,andthereisnoaccelerationclauseinthecaseofnon-paymentofonebill,whichistraditionallyfeaturedincommercialloanagreements.Bythistoken,factoringandforfaitingaresimilartosomeextent.Buttherearealsocertaindifferencesbetweenthem.Th