Mitigating Techniques for Commercial Risk/Forfaiting-Transference: Difference between revisions
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The name forfaiting is derived from the French term for the technique a forfait. It refers to the concept that a seller forfeits the right to a future payment on a receivable in return for immediate cash. This may sound similar to factoring. The objective of a forfaiter is to purchase such financial instruments at a low price and sell them at a high price, garnering a trading profit in the process. Frequently, forfaiters require that these instruments be avalized (guaranteed) by a buyer's bank, thereby enhancing marketability. | The name forfaiting is derived from the French term for the technique a forfait. It refers to the concept that a seller forfeits the right to a future payment on a receivable in return for immediate cash. This may sound similar to factoring. The objective of a forfaiter is to purchase such financial instruments at a low price and sell them at a high price, garnering a trading profit in the process. Frequently, forfaiters require that these instruments be avalized (guaranteed) by a buyer's bank, thereby enhancing marketability. | ||
Because there is little potential profit in small transactions and because buyers balk at signing promissory notes and obtaining bank avals on short-term transactions, forfaiters tend to find a niche in medium-term transactions, such as capital goods. | Because there is little potential profit in small transactions and because buyers balk at signing promissory notes and obtaining bank avals on short-term transactions, forfaiters tend to find a niche in medium-term transactions, such as capital goods. | ||
<div style="float:right;">[[Mitigating Techniques for Commercial Risk/Factoring-Transference|Prev]] | [[Mitigating Techniques for Commercial Risk/Banker's Acceptances-Transference|Next]] | <div style="float:right;">[[Mitigating Techniques for Commercial Risk/Factoring-Transference|Prev]] | [[Mitigating Techniques for Commercial Risk/Banker's Acceptances-Transference|Next]] | ||
[[Category:International business]] | [[Category:International business]] | ||
Latest revision as of 19:27, 12 August 2009
The name forfaiting is derived from the French term for the technique a forfait. It refers to the concept that a seller forfeits the right to a future payment on a receivable in return for immediate cash. This may sound similar to factoring. The objective of a forfaiter is to purchase such financial instruments at a low price and sell them at a high price, garnering a trading profit in the process. Frequently, forfaiters require that these instruments be avalized (guaranteed) by a buyer's bank, thereby enhancing marketability.
Because there is little potential profit in small transactions and because buyers balk at signing promissory notes and obtaining bank avals on short-term transactions, forfaiters tend to find a niche in medium-term transactions, such as capital goods.