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Forfaiting
Source:
Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order
it here)
A non-recourse
financing of receivables similar to factoring; called "forfaitierung"
in Austria and Germany. While
a factor normally purchases a company's short-term receivables, a forfait
bank purchases notes that are long-term receivables with maximum maturities
of eight years. The forfaiting
bank has no recourse to the seller of the goods, but gets the notes at
a substantial discount for cash.
The
Comptroller of the Currency has reported that an increasing number of
U.S. banks active in international financing have in recent years been
financing receivables from Eastern European and developing countries by
forfaiting. The centers of
forfaiting are Zurich and Vienna, where many large banks, including U.S.
banks, provide forfaiting through either their branches or specialized
subsidiaries.
Forfaiting
is used when government export credits or credit guarantees are not available
or when a seller does not extend long-term credits to areas such as Eastern
Europe. Forfaiting also is
an important method of financing for small of medium-sized companies because
it enables them to negotiate transactions that would normally exceed their
financial capabilities. By
using forfaiting, small or medium-sized firms can immediately sell their
long-term receivables without recourse.
The
Handbook for National Bank Examiners
of the Comptroller of the Currency calls for the examiner to review the
bank's forfaiting activities carefully, to determine whether long-term receivables
have been purchased from firms in countries prone to frequent political
changes and fluctuations in exchange rates.
Also, the other risks peculiar to factoring are also present in forfaiting,
along with the risks associated with the long-term nature of the receivables
purchased.
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