Factoring and Forfaiting | Статья в журнале «Молодой ученый»


Рубрика: Экономика и управление

Опубликовано в Молодой учёный №2 (37) февраль 2012 г.

Статья просмотрена: 94 раза

Библиографическое описание:

Андреева Д. Ц. Factoring and Forfaiting // Молодой ученый. — 2012. — №2. — С. 108-111. — URL https://moluch.ru/archive/37/4326/ (дата обращения: 25.05.2018).

  1. Characteristics of forfaiting

  1. What is „forfaiting“

Forfaiting is a method of financing primarily international commercial transactions and is a kind of medium-term financing of the export of goods of production use. Before concluding the contract, the exporter, if unable to credit the foreign importer, has the option of financing the transaction from an external source (a forfaiter). In other words, in forfaiting a third party (the forfaiter) purchases the receivables from the foreign importer to the exporter, whose only responsibility is to produce and deliver the agreed product. Underlying this process is the purchase of various debt instruments, without recourse, such as letters of credit, bills of exchange, promissory notes or other negotiable instruments for the furure repayment of liabilities. The forfaiter charges interest (discount) for the entire loan period and pays the net proceeds immediately. Actually, the exporter transforms his sale, based on credit, into a cash transaction.Debt instruments are drawn by the exporter (seller), accepted by the importer (buyer) and the forfaitable liability is most often guaranteed by aval or unconditional guarantee. In principle, the guarantee is issued by the bank of the importer, but there are rare cases, when the forfaiting is done without guarantee. The forfaiter either holds the instrument to maturity, or endorses it without recourse. Most often this is used in transactions for over 100 000 dollars (the minimum for forfaiting is 25 000 dollars). The purchased receivables have a credit repayment period of between 180 days and 10 years.

  1. Common case

To illustrate how the process of forfaiting practically works, we will consider the following most common situation, in which the seller and buyer are from different countries. The following steps are taken:

A/ During the negotiations between the exporter and the importer on the supply of goods, the importer wishes to be granted credit.The exporter investigates the possibility for the transaction to be financed through forfaiting.

B/ Having been contacted, the forfaiter requires the following information:
• What is the importer‘s country

• The name of the importer

• What type of goods will be transported

• Delivery period

• Currency, amount and period of the liability

• Form of the liability

•Whether the liability of the importer will be guaranteed by a bank or in some other way

The importer is investigated, his creditworthiness is checked, following the relevant routines.
C/ After the investigation, the forfaiter submits a proposal to the exporter, which is valid for 48 hours, for the purchase of receivables. The discount, the commission and other terms and conditions of the contract are given. At this stage none of the three parties is bound in any way.
D/ When the exporter accepts the proposed terms and conditions, the main clauses are agreed upon and the basic documents, such as debt documents (bills of exchange and promissory notes), guarantees, etc. are described. Before the final signing of the contract, the exporter requests that the forfaiter prepares an agreement, whereby the latter undertakes to purchase the receivable, formed as a result of the commercial transaction between the exporter and the importer.
E/ The forfaiter issues such an agreement, which is approved by the exporter and is binding for both parties. It contains the following main points:

• Details of the major commercial transaction.

• The essence of the debt instruments to be purchased by forfaiter.

•The discount(interest) to be charged, as well as other charges.

• Documents that prove that the debt which the forfaiter will purchase, is valid and lawful.
F/ A contract is concluded for the transaction between the exporter and the importer. A period of binding, which lasts from 3 to 6 months, follows. During this time the exporter ships the goods, collects all the documents that the forfaiter needs and delivers them to him. The latter cannot abandon his obligation under the contract.The exporter pays the relevant charges.
G/ The importer appoints a guarantor for his liability and submits the documents that the exporter needs to complete the forfaiting. This exchange of documents is usually done by a bank and most commonly a letter of credit is used to reduce the risk of the exporter.
H/ The exporter submits these documents to the forfaiter who, after checking their authenticity, purchases the liability of the importer (the bill of exchange or the promissory note is endorsed) and pays the exporter.

I/ Collection of receivables from the original debtor and closing the transaction. As the endorsement is without recourse, the exporter has no longer interest in the transaction. The forfaiter is the one who has to collect the payments from the importer and the entire risk remains with the forfaiter.


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Diagram 1 The process of forfaiting

  1. An example of a forfeiter

Forfaiting as a method of financing is a relatively new procedure, not very familiar. In Europe (Italy and Germany) this technique is well-known, however, and most of the demand for this service is from these countries.  The English, Scandinavian, Spanish and French exporters are enthusiastically embracing the use of this technique to finance international transactions. On the other hand, countries like the U.S. and Canada are slowly adopting this method, which, some experts suspect, is due to the simplicity of the method, besides the lack of complex documents.

For the participation of a country like Bulgaria in international trade the knowledge of this method is of crucial importance. This statement is especially true for small countries whose markets have a low absorption capacity. The companies of such countries seek to penetrate foreign markets to ensure profitable production. Governmental bodies, on the other hand, rely on an active trade balance and hence the additional budget revenues and robust growth in gross domestic product.Therefore, a variety of measures are used, companies are established, state-owned or private, to boost the foreign trade operations of local enterprises. It is for this reason that forfaiting in Bulgaria should be encouraged. Unfortunately, few institutions offer this service and one of them is First Investment Bank. The Bulgarian First Investment Bank, with the West London Branch, offers forfaiting, the discounting of future receivables. The new product is for companies exporting goods to the country, with a high risk of importers and their banks.

In forfaiting are used deferred payment letters of credit, promissory notes, bills of exchange:
A/ Discounting of sight letters of credit - when confirmation has been received by the foreign bank for payment, also when customer transfers have been received for a future maturity date.
B/ First Investment Bank has signed a contract with BEIA, Ltd. (The Bulgarian Export Insurance Agency) for cooperation in financing export-oriented companies or projects.

  1. Characteristics of factoring

  1. What is „Factoring“?


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Digram 2 The Process of factoring

  • Factoring is a form of financing, based on current assets, in which the credit is based on the value of the receivables of the supplier, i.e. of the payments payable by the customers to the supplier.

  • Unlike the other major  form of financing , based on real assets, with factoring the  receivables are acquired by the factor. This means that the ownership of the receivables is transferred  from the seller to the  factor.

  • In addition to financing, factoring generally includes other services, too. Basically these are crediting and collection of receivables.

  • This set of services is one of the advantages of factoring over other types of crediting, especially for companies that  lack the skills or resources to manage credit activities and the collection of receivables.

Most importantly, factoring is not crediting, factoring is:

  • collection of receivables

  • financing

  • аdministration of customer receivables.

  1. Prerequisites for a start

Criteria for factoring:

  • Receivables should be negotiable, qualifying for factoring and receivable without any legal restrictions.

  • The  company should have a business record of at least one year.

  • Terms of deferred payment - an account opened within 120 days.

Procedures before the conclusion of the factoring contract

  • Preliminary request for factoring

  • Preliminary assessment of the credit-worthiness of the buyers, conducted by the Factor

  • Request for factoring

  • Submission of all documents, requested by the Factor

  • Establishing of  restrictions of the debtor (buyer) and approval  by the Factor

  • Consent on the part of the debtor (buyer) to transfer the receivables

  • Submission of bargain and sale contracts between the client and his buyers

  • Signing of a factoring contract between the client and the factor

  • Transfer of receivables

  1. Guiding principles in the service of factoring

Bulbank is the first financial institution in Bulgaria, which offers domestic factoring, following its extensive international presence and experience and striving to achieve the best standards in the industry. Bulbank is the most powerful financial group not only in Bulgaria but also  across all of  Eastern Europe.

The service of factoring: Financing and collecting the receivables of  clients with the primary objective to optimize the client's business and help its growth.

For these reasons the objective is to provide:


  • Up to one week for initial analysis, evaluation for  decision taking

  • Up to one day for approval of the submitted invoices and transfer of advance payment to customer

  • Minimum documentation and administrative burdens


  • Instant and direct communication

  • Wide range of related financial and business consulting


  • Adaptation of the  factoring scheme to the  way the client works  and his relations with his customers

  • Determination  not to  complicate the trade relations between the Client and his customers.

  1. Who is factoring for ?

Manufacturers, trading companies or companies, providing certain types of services and supplying goods or services:

  • Regular customers with an opened account and a period of deferred payment of  between 30 and 120 days

  • Receivables are negotiable and collectable with no  legal restrictions

  • Receivables have not fallen due

  • The percentage of credit notes, discounts on old debts, etc. is low

  • There is no relation (mostly - property and /or management) between the Supplier and his client

  • There is no practice of bilateral offsetting

  • The supplier has a business record of at least one year 

  • The customer (payer) agrees that the  receivables be sold  and he  pays them on account of the Factor

  1. Advantages of the use of financing receivables

  • It is not strictly oriented to the current record of the customer . It helps fast-growing   companies by providing them with the cash that the development of their business requires.

  • Factoring is a type of crediting and provides cash without debt, i.e. it allows the company to raise cash when there is no opportunity or desire to increase the size of its debt, and also  releases securities for other projects

  • It converts  receivables with a maturity of 30, 60, 90 and 120 days into cash within hours, i.e. it provides cash for capital expenditures and /or pay quickly when the customer needs it

  • Opportunity  to purchase goods at a discount rather than on  more expensive payment terms. Faster acquisition of materials and faster execution of orders

  • It allows the customer to provide better conditions (e.g.  a period of deferred payment) to his customers, thereby facilitating sales

  • It does not require long-term commitments


Finally, factoring and forfaiting,as forms of financing, are relatively higher in price than the standard bank credit or discounting, which derives from the various additional commissions  that are charged, as well as the fact that with them a value- added-tax is levied. They are fast and flexible methods to improve the cash flow of companies, attractive and competitive terms of payment to customers.


  1. Балабанов И. Т., Основы финансового менеджмента, как управлять капиталом?, изд. „Финансы и статистика“, М., 1996 г.

  2. Димитров Й. С., Финансов мениджмънт – част 2, изд. „Питагор“, С., 2009 г.

  3. Ненков Д., Финансов мениджмънт, Университетско издателство „Стопанство“, С., 2000 г.

  4. Bringham E., I. Gapenski, Financial management – theory and practice, The Dryden press, 1994


Основные термины (генерируются автоматически): QUALITY, SERVICES, SPEED, BEIA, COMMERCIAL, FLEXIBILITY, INTERNET.


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