Why are you interested in interest and currency management? Every day the global market provides your company with new opportunities which you should take advantage of. At the same time the markets are becoming more dynamic.
The export advance is a loan on a documentary basis with the payment term "documentary collection" or "documentary letter of credit". We bridge the period between the delivery of the goods and the receipt of the export proceeds or accepted bill. The documents which trigger payment serve as security.
As an importer you obtain with the advance against documents a loan for any collection or letter of credit documents. Repayment is made from the proceeds of the imported goods sold on.
Reduce liquidity risk
In export business many aspects need to be considered, including the risk to one's own liquidity. Forfaiting provides a solution here. With forfaiting you sell us receivables relating to your export business which are due at a later date. In doing so you improve your liquidity. And you prevent claims for compensation being made against you.
By selling the receivables, we assume the risk of default for you. This means that claims for compensation cannot be made against you if the importer is unable or unwilling to pay. You are liable solely for the validity of your receivable.
Two important benefits
You no longer bear the economic risk for your export business and we even assume country and currency risk for you. This allows you to cost precisely.
Plan well for success
It is best if you plan the forfaiting before concluding the export transaction. The costs incurred can be included in the price of your delivery and you agree with the customer a payment with a bonded loan. Here the importer undertakes to pay the agreed sum himself. Thanks to forfaiting, the payment term which you grant your customer does not affect your liquidity.
Commitment to buy or protect with a letter of credit
With an export letter of credit, the exporter can also request his house bank to make an abstract promise to pay (confirmed letter of credit), provided the opening of the letter of credit allows for this.
However, the opening of the letter of credit often does not include a confirmation statement. If the exporter would still like the joint liability of his house bank, there is the option of a "commitment to buy or protect", which can be stipulated in a separate contract. This is virtually the same commitment as a letter of credit confirmation, only without the bank issuing the letter of credit being informed.
The costs of this additional risk protection are calculated based on the risk in the home country and the counterparty risk of the importer's bank.