Every day more and more words borrowed from foreign languages appear in our everyday life. The meaning of some is quite clear and understandable. Such terms take root quickly and become part of everyday speech. For example: kulnaya, laptop, player, mobile and others. However, there are a number of specific terms, the nature of the origin and further use of which not everyone can understand. The concept of forfeiting also belongs to the category of such words. What is it? In simple words, only a person familiar with the economic foundations can explain the meaning of a long foreign term. Paper help, which reveals the structure and application of this concept, will also provide adequate assistance in this matter. Often people confuse or link factoring and forfeiting. These are two different terms that practically do not touch each other. The last concept will be discussed in this article.
Nature of origin and interpretation
Forfaiting is an economic term. The birthplace of this word is England. It was there that such a concept as forfeit appeared, which in translation means “forfeit”, “fine”, “retribution”, “lose the right”. An even earlier form of the word is the French analogue of a forfai, or "whole."
Currently, there are several options for decoding this term. So, forfaiting is a financial transaction during which an agent or, as it is called on the market, forfeiter acquires commercial obligations of the buyer / borrower / importer to the seller / creditor / exporter. For example, organization A needs to return 100 thousand conventional monetary units for the goods delivered to it by company B. There is no way to repay the debt. Then a third party may enter the situation, who will repay the loan of organization A. At the same time, company B receives its money. Organization A - deferral of loan payment. Agent - not only the money spent, but also a certain percentage of future profits. The banking structure most often acts as an agent.
additional information
Thus, forfaiting is a specific form of lending, the payment term for which comes after a certain period. As a rule, several years are taken as a time period. The subject of lending are trade transactions or services. The main distinguishing feature of this operation is the presence of a clause on liability for risks. Forfeiter can buy debt securities “without recourse”. That is, the borrowing bank, when acquiring documents, does not have the right to make claims to their previous holder. As securities here, as a rule, bills of exchange are used.
Features and implementation scheme
Forfeiting is a fairly common way of trade lending in the West. He received particular popularity in the UK and Germany. What are the features of the transaction? Let's get a look. First, both the seller and the buyer can initiate a forfaiting operation. Or by general agreement. The process flow chart is as follows:
- The agent bank puts forward a number of financial conditions to the buyer.
- The latter provides forfeiter securities that fully satisfy the requirements put forward.
- Then the bank redeems the debt from the seller.
Documents (promissory notes and drafts) are provided to the forfeiter agent, they confirm receipt of the goods, and also indicate the transfer of the loan and the right to proceed, which is planned to be obtained from the sale of products in the future.
Benefits
Currently, the so-called international forfaiting is common. Its main advantage is the ability to purchase goods in cash at the moment instead of the profit that will be received in the future. A plus is the fixed interest rate. It allows the borrower to quickly and conveniently plan loan costs. In addition, paperwork is a very simple and quick procedure.
On the territory of the Russian Federation, the term for forfeiting transactions often exceeds the European period of several days. The reason for this is the need for specially issued permits from the Central Bank. That, in turn, should receive a request for approval of the operation. Consideration of this application takes about a month.
disadvantages
Unlike bank loans, forfeiting transactions are strictly confidential. However, they have their drawbacks. For example, finding a guarantor for a bank. In addition, the interest rate for such operations is much higher than for other types of lending.
When making forfaiting transactions, special attention should be paid to such items as:
- The need for mandatory and timely warning the seller about the repayment of existing debt in installments.
- The bank should be the guarantor of the repayment of the debt, if the buyer is not a state representative or an international company.