Forfaiting

Forfaiting means that Bank of China purchases the outstanding payment receivable claim derived from goods and services under L/C without recourse. Usually the outstanding claims have been accepted  to make payment by financial institutions.

Forfaiting business enables a customer to receive non-recourse payments with fixed rate and without taking up his credit line, so that it can meet the customer's needs in avoiding risks, increasing cash flow and improving financial statements. At present, the types of forfaiting are as follows:

1. Forfaiting under a usance L/C.

As applied by the customer, Bank of China purchases non-recourse outstanding accounts receivable confirmed/undertaken by the issuing bank under the negotiation, acceptance or deferred payment L/C.

2. Forfaiting under domestic L/C.

Under the domestic deferred payment L/C and the negotiable deferred payment L/C, upon receipt of the authentic and valid payment confirmation at maturity from the issuing bank, Bank of China purchases the non-recourse outstanding claims from customers.

1. Purchase without recourse. Bank of China purchases accounts receivable without recourse to secure customer's accounts receivable.
2. Mitigate risks. Customers transfer such risks as country risk, credit risk, exchange rate risk and interest rate risk to Bank of China for mitigate risk’s purpose.
3. Increase working capital. Customers obtain 100% financing, turning the future accounts receivable into current cash flows so as to avoid capital occupation and increase cash flow.
4. Optimize the financial statements. Customers can reduce accounts receivable and improve cash flows without increasing liabilities, so that the financial statements can be optimized.

1. Customers who have limited working capital and need to accelerate turnover rate of accounts receivable.
2. Customers who want to mitigate the credit risk, country risk, interest rate risk and exchange rate risk faced by the long-term accounts receivable.

1. The customer and Bank of China should sign the Forfaiting Contract.
2. The customer submits to Bank of China a Forfaiting Application Form.
3. Transfer outstanding claims. In case the customer holds bills, the bill is transferred to Bank of China; in case the bills are not available, the customer and Bank of China sign Notice of Receivable claim Assignment.
4. Make discounted payment. Upon receipt of acceptance/undertaking notice of the issuing bank/nominated bank under the L/C or other certificate of claims in line with the requirements, Bank of China pays the customer the net proceeds after deducting discount interest and related fees.