How to Use Forfeiting for Export Finance

Long used as a method in European trading, more export/import moguls are finding forfeiture to decrease time of payment for goods. The growth of the Swiss Banks derived from the development of forfeiting during the fifties and sixties when West Germany was trying to break into the market with European neighbors. Forfeiting in international export deals is becoming more common in the United States. Read on to learn more.

Instructions

1. Understand the forfeiting process. The exporter can allow a financial institution to buy the paper for the transaction, including promissory notes or sales invoices. The importers bank will typically provide the guarantee for payments. The exporter forfeits all rights to future payment associated with the transaction and the clearing house recovers the goods if the terms of the notes are not met.

2. Research the possibility of using forfeiting when dealing with unstable political environments. Credit and currency issues may be more problematic with different clients and by using forfeiting you can ensure payments without risk.

3. Take advantage of avoiding the standard 5 years export finance requirement for capital goods. The forfeiter can qualify a price which will be based on a market index and a margin.

4. Consider locking the profit margin with a fixed price. This is common for goods that will ship six months out, for example, and will allow you to move the product and gather the payment ahead of time.

Tips & Warnings

• Beware of national or international companies asking to mediate or broker your forfeiting transaction.