Page 376 - F1 Integrated Workbook STUDENT 2018

Chapter 22

1.8 Export factoring

Export factoring is similar to ordinary factoring, with the exception that the factoring
organisation agrees to factor the client’s trade receivables for exports. The factor’s
services include administration of the receivables ledger and collecting payment, and
providing factor finance.

In view of the problems that can arise with collecting payments from customers in
other countries, the expertise of an export factor can be very helpful, particularly for
small and medium-sized businesses with little experience in collecting foreign
payments.

1.9 Forfaiting

Forfaiting can be a source of medium-term trade finance. It is particularly suitable for
the financing of export transactions for which, due to the nature of the goods involved
or the size of the transactions, payments are made over a period of several years.

In order to set up a forfaiting arrangement, the importer must be prepared to:

 pay some of the purchase price on delivery, and

 make the remaining payments at regular intervals over a period of several
years.

The key features of forfaiting are therefore that:

 The importer obtains medium-term finance for much of the purchase cost of the
goods.

 The exporter receives immediate payment.

 The credit risk is accepted by the forfaiting bank, although this risk is reduced
by the avalisation of the promissory notes by the avalising bank.

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