UNIT 2

PART II
S.P.Nandhini​
 FORTFAITING

Forfaiting is a method of trade finance that allows exporters

to obtain cash by selling their medium and long-term
foreign accounts receivable at a discount to a forfaiter, a spe­
cialized finance firm or a department in a bank. Forfaiting
can help exporters improve cash flow,
particularly when pursuing sales to foreign buyers who
depend on longer financing terms which can stretch for
months or years.
 Presentation title 3

THIS IS HOW
FORFAITING WORKS:
1.Communicate with prospective importer - An
exporter discusses a potential sale with an importer
in need of extended credit terms.
2. Contact a forfaiter - An exporter should then
approach a forfaiter early in the process before
pricing negotiations with the importer. That way, the
exporter can build the forfaiting cost into the sale
price.
 Presentation title 4

3.Present transaction details to forfaiter - The exporter

presents details of the proposed sale and financing to the
forfaiter. Typical details include name of buyer, type of goods
being sold, date, duration, and currency of the contract, credit
period, payment schedule, and evidence of debt.

4. Sign commitment letter with forfaiter - Within days, the

forfaiter evaluates the transaction and feasibility of the deal and
determines a discounted price at which to purchase the accounts
receivable. If the discounted price is accepted, the exporter signs
a commitment letter issued by the forfaiter.
DEFERRED PAYMENT

There are three basic payment methods in foreign

trade: prepayment, immediate payment and
deferred payment (post-payment). It is obvious that
from the point of view of payment, only deferred
payment presents a risk to the exporter as it means
that the customer (or their bank) pays only after
the delivery of goods.
 Presentation title 6

DEFERRED PAYMENT TERMS

Therefore, export proceeds which are realized after 180 days
are referred to as “Deferred Payment Export”
An export contract in which export proceeds realized after
180 days from the date of shipment is known as “Deferred
Payment Export”.
The payment may be made by the overseas buyer over a
period of time in installment. Depending upon the project,
approval needs to be taken from RBI, Exim Bank, ECGC &
Financial Institution.
 Presentation title 7

CAPITAL GOODS IMPORTING

Capital goods are physical assets that a
company uses in the production process to
manufacture products and services that
consumers will later use. Capital goods include
buildings, machinery, equipment, vehicles, and
tools. Capital goods are not finished goods,
instead, they are used to make finished goods.
PAYMENTS
Advance remittance should be effected direct to the
suppliers. Physical import should be made within 6
months (36 months in case of capital goods) from
date of remittance and documentary evidence is to
be furnished within 15 days thereafter. Branches
should maintain a separate register for advance
payment and follow up for submission of Bill of
Entry.