Forfaiting (PDF 185KB) - HSBC Africa

ForfaitingCustomised Trade Finance Solutions forEnhanced Export PerformanceWhat is Forfaiting?Today’s highly competitive business environment often requires exporters to provide a buyer with credit terms in order tosecure a deal. But every buyer credit presents a dilemma to exporters due to the potential risk of default. This could be theresult of commercial, financial or political events which might suddenly occur over the life of a debit. Besides thenon-payment risk, exporters also have to face a host of other related issues such as liquidity constraints, bank borrowing,foreign exchange exposure and others.Forfaiting is a form of trade finance that can address these concerns. Derived from the French word à forfait, it means tosurrender or relinquish the rights to something. A forfaiting transaction refers to an exporter surrendering to the bank therights to claim payment on goods or services delivered to an importer, in return for a cash payment, and on a withoutresource basis. The risks are essentially transferred by the exporter to the bank.Why Forfait?Through HSBC’s vast experience and internationalnetwork, HSBC Forfaiting allows exporters to offercredit terms to their buyers which will greatly enhancetheir commercial competitiveness.At the same time the exporters will also enjoy thefollowing benefits:• NO political, credit or commercial risks• BETTER cash flow, because the exporter hasimmediate access to funds• LOWER bank borrowings, thus improving thecompany’s financial statements• NO interest rate fluctuation risk• NEGLIGIBLE foreign exchange risk• LOWER debt collection administrative costs• SIMPLE documentationHow Forfaiting worksUsually an acceptable forfaiting risk would come fromone of these two groups:• Sovereign risk• Commercial bank riskforfaiting transaction can be made available by usingone of the following commonly encountered debtinstruments:• Bills of Exchange• Promissory Notes• Documentary Credit (DC, also knows as Letter ofCredit)• Letters of Guarantee• Deferred Payment DC (without drawing drafts)• Avail on negotiable instrumentsCostsA forfaiting transaction involves three basic costs:1. Interest Rate: Essentially a direct reflection of theunderlying risk for HSBC. A low margin is applied on alow country / strong credit risk and, conversely, ahigher margin is applied on a higher country / weakercredit risk.2. Commitment Fee: Payable to HSBC for holding thecommitment until a shipment has been completed;the fee will vary according to country and credit risk.Subject to the final obligator’s risk from any of theabove groups being acceptable to HSBC Forfaiting, a

3. Grace Days: A certain number of grace days maybe added to the discounting period to offset potentialdelay in the transfer of payments by the importingcountry or the obligor, based on HSBC’s experiencewith the country concerned. Often, grace days areexempted for regions with acceptable transferrecords.We will respond to you, normally, within threebusiness days, with an indicative pricing and terms ifthe deal is forfaitable.We will further guide you on the requireddocumentation or any pricing computation.(1b) Forfaiting ContractStructureAlthough Forfaiting is based on the simple concept ofdiscounting, the variations of structure are numerous.HSBC will advise on a suitable structure that matchesyour needs taking into consideration the prevailingmarket situation.An Example(4) DC AdvisingExporter(6) Present Documents for Negotiation(9) Payment without Recourse(1a) Commercial Contract(5) Effect ShipmentImporter(2) DC ApplicationHSBC Trade Services in South AfricaHSBC is consistently recognised by key industrytitles for our trade expertise, quality of customerservice and breadth and depth of product range.We have offered Forfaiting services in the Asia-Pacific region since 1984 and are supported byextensive organisations.Contact UsTalk to us today for a discussion on your trade needs.Contact your HSBC Relationship Manager or Trade andSupply Chain Specialist to start using HSBC’s ForfaitingSolution. You can also call HSBC Trade and SupplyChain during regular business hours or visit us on theWeb at www.hsbc.co.za for further information.Nazeem MohammedSenior Vice President SSA Sales andProduct Development+27 11 676 4541Darryl HardimanVice President, Sales Trade Finance+27 11 676 4424HSBC(3) DC Issuance(7) Present Documents for Acceptance(8) Acceptance AdviceBANKMyra Morgan - ZlatevSVP Trade & Supply Change Sales+27 11 676 4543Forfaiting /DC Negotiating Bank(10) Payment Claim at MaturityDC Issuing BankHow to get startedIt’s simple. Contact your local HSBC Trade Servicesoffice and provide us with the following information:• Name of the importer and importing country• Name of the documentary credit issuing bank andbranch or the underlying credit risk• Amount and payment period of the transaction• Nature of the goods to be exported• Estimated shipment period and the number ofshipments, if applicable• Any other information or documents as may berequested by HSBC Forfaitingwww.hsbc.co.za/TradeAndSupplyChain/Trade and supply chain transactions may be subject to credit approval. Otherrestrictions, including specific country regulations, may apply. Foreign currencyexchange rates may apply to certain trade transactions. Certain products and solutionscontained herein may not be offered in every market. Check with your local HSBCTrade and Supply Chain specialist for a full product offering in your country.The products and services mentioned herein are only available in jurisdictions whererespective issuers are authorised to operate and the material is not intended for use bypersons located in or resident in jurisdictions which restrict the distribution of thismaterial.© Copyright. HSBC Bank PLC 2003-2013. All rights reserved.