How Does a Forfaiting Transaction Work?

Discount Letters of Credit

1.  Forfaiting terms are agreed between the exporter and Credit Europe Bank
2. Commercial contract for the underlying trade is made.
3. Importer gives instruction to its bank to issue an l/c
4. L/C is issued to the exporter’s bank to be advised and/or confirmed to the importer’s bank
5. L/C is advised to the exporter by th exporter’s bank
6. The goods are shipped by the exporter.
7. Exporter presents shipping documents to its bank for acceptance.
8. Exporter’s bank sends documents to importer’s bank
9. Exporter assigns its rights to Credit Europe Bank
10. Importer’s bank accepts the assignment
11. Credit Europe Bank discount the L/C and pay to the exporter
12. At maturity the Importer’s bank pays to Credit Europe Bank
13. Importer pays to its bank.

Discount of Receivables

1. Forfaiting terms are agreed between the exporter and Credit Europe Bank
2. Commercial contract for the underlying trade is made.
3. The goods are delivered by the exporter.
4. Presentation of debt instruments to the guarantor bank for avalisation. Transactions are evidenced by negotiable debt instruments such as  P/N’s or B/E’s
5. Delivery of avalised debt  instruments to the exporter for acceptance.
6. Delivery of fully endorsed documents to Credit Europe Bank.
7. Credit Europe Bank pays the exporter the discounted contract value.
8. On maturity Credit Europe Bank presents the debt instrument to guarantor.
9. Guarantor bank pays Credit Europe Bank
10. Importer pays guarantor.

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