A proven method of providing fixed rate export finance for international trade transactions from Mezra (Americas) Ltd. In recent years, forfeiting has assumed an important role for exporters who desire cash instead of deferred payments, especially from countries where protection against credit, economic and political risks has become more difficult.
Generally, the export receivables are guaranteed by the importer's bank. This allows the purchaser to discount "without recourse" to the exporter, thus taking the transaction off the exporter's balance sheet. This can have important benefits in terms of its positive effects on the exporting company's key financial ratios.
Typically the importer's obligations are evidenced by accepted bills of exchange or promissory notes which a bank avals - or guarantees by way of a "per aval" endorsement. The note are then said to be avalized. Equally the receivable may take the form of a term draft drawn under documentary letters of credit.
Forfeiting is often applied where the exporter is selling capital goods, and having to offer export finance up to five years. The forfeiter will then quote a price being a discount rate to be applied to the paper, calculated on the underlying cost of funds (LIBOR) plus a margin. It is usually possible to have a fixed price quoted for a shipment taking place up to six months forward, and the exporter is thus able to lock into his profit from the outset.
There is an active secondary market for avalized export finance paper in London, and Mezra accesses this market on behalf of its clients, to seek financing solutions for those "difficult" markets.