Does your company operate abroad and you want to know how advance the collection of your invoices? He forfaiting It is the financing modality you need to achieve it. In this post we are going to discover its benefits and characteristics.
What is Forfaiting
He forfaiting is one of the modalities of export financing available for companies operating across national borders. It is an alternative source of financing, in which a financial entity anticipates the company that undertakes the ski pass collection of pending invoices of its clients.
The financial entity assumes the risk related to the collection of bills and promissory notes of the company, and therefore requires the company in question to pay interest. The interest rates established they are usually tall, due to the possible insolvency of the debtors. However, the associated interest rates always they are fixed.
Documents likely to be included in operations of forfaiting are those internationally accepted, such as bills and promissory notes. The document expirations accepted by financial institutions tend to fluctuate between 6 months and 5 years.
These entities, as a result of the risk they incur in this type of operation, study the solvency of the company's customers. In case customers show high risk of delinquency, it is most probable that the financial entities Do not accept to manage the collection of the credit.
Forfaiting vs. Factoring
He factoring is the other mode of export financing to which companies can turn. It implies following the same procedure as in the ski pass but, depending on the agreement reached between the financial institution and the company, Different types of factoring can be distinguished (without recourse, with recourse, with notice, without notice and agency).
These two export financing tools present a clear difference between them. In the case of factoring, depending on the type of agreement reached between the company and the factor (financial entity), the former could be obliged to respond to the insolvency of the debtor (case of recourse factoring). This will never be possible within operations of forfaiting.
In addition to the one already mentioned, other differences found between these two financial tools are the following:
- The documents that can be included in factoring are not bills or promissory notes, but they are about bills, whether they come from the provision of services or the sale of products.
- The maturities of these invoices do not exceed 3 or 4 months (short term). However, in the case of bills and promissory notes, and as previously clarified, their maturities usually exceed 6 months (long term).
Advantages of Ski Passing
He forfaiting It is constituted as a financial tool that can bring numerous benefits to your business. Between the The most notable advantages are:
- The possibility of to be able to dispose of the money corresponding to bills and promissory notes in the shortest term that expire in years is extremely useful for their businesses. It allows you to manage liquidity conveniently and efficiently, being able to face the most immediate payment obligations.
- This operation allows delegate those activities related to the management of credits in the process of collection from their clients to financial institutions. This can be translated into very important and transcendental savings of effort and time in their businesses, the latter being a very important and scarce resource.
- As previously highlighted, the financial organizations carry out studies of the solvency of debtors. Consequently, not only these organizations, but also you in the role of requesting companies, will treasure very valuable information on the possible delinquency of customers of the company thanks to the financial advice received.
- An advantage that emerges from the previous one is that, when there are cases of delinquency or non-payment within the terms agreed by the debtors, financial institutions will face these situations, since they previously assumed the risk of collecting the outstanding credits.
- It is true that the fixed interest rates in this type of operations they are usually high, as a consequence of the fact that the clients that are frequently included have associates high levels of uncertainty. However, it should be noted again that fixed interest rates are always treated, and, in this way, you will not have to be aware of their possible variation over time.
For companies whose scope of action goes beyond the national territory, the financing your exports It is an instrument that brings them great utility. Yes, besides power collect customer credits in advance, the option of delegating the risk and activities related to them to other organizations is presented, the benefit for businesses is unquestionable and, therefore, the enormous convenience of using a tool such as the forfaiting.
If you need help to collect your export invoices in advance, at Alter Finance we are experts in financing for companies and collection management. Ask us without obligation.