Letter of Credit (L/C) forfaiting allows an exporter to receive up–front payment for selling L/C–based receivables at a discount on a non–recourse basis.
The exporter seeking to hedge the insolvency risk of the L/C issuing bank and the country risk of the importer and receive payment upfront may approach an advising bank to purchase the L/C–based receivables at discount, giving up the right to collect full payment in the receivables to the said bank.
Structure of a Typical L/C Forfaiting Arrangement
Benefits of L/C Forfaiting
- Reduce non-payment risk while increasing the transaction volume with the importer under flexible payment terms
- Shift insolvency risk of the L/C issuing bank to the advising bank
Improving balance sheets
- Optimize balance sheets by taking the receivables off the balance sheet (please consult with your professional accountant)
Reducing management burden
- Reduce the burden of collecting the receivables from the importer
- Allow for prolonged or flexible payment terms for competitiveness, while reducing payment risk of importer.
- The use of the above products or services is contingent upon the credit assessment in accordance with Mizuho Bank’s prescribed procedures. As part of this assessment, you may be required to submit certain documents.
- Fees may be charged for using these products or services.
- Please consult an attorney, accountant, or tax accountant regarding any legal matters, accounting issues, or taxation concerns.