Forfaiting involves several fees and charges, which can vary depending on various factors such as the nature of the transaction, the parties involved, and the risks associated with the underlying transactions. Some of the common fees involved in forfaiting transactions are:
- Discount Fee: This is the most significant fee involved in forfaiting transactions. It represents the discount rate applied to the value of the receivables. The discount fee varies based on the creditworthiness of the buyer, the tenor of the receivables, and the country risk.
- Handling Fees: This fee is charged by the forfaiter for processing the transaction. It is usually a percentage of the value of the receivables and is negotiated between the forfaiter and the exporter.
- Insurance Fees: Forfaiting involves the transfer of the credit risk from the exporter to the forfaiter. Therefore, the forfaiter may charge an insurance fee to cover the risk of non-payment by the buyer.
- Interest Rate: This fee is charged by the forfaiter for financing the receivables until the maturity date. The interest rate is typically based on LIBOR or other reference rates and depends on the tenor of the receivables.
- Commitment Fees: Some forfaiters may charge a commitment fee to the exporter for providing a firm commitment to purchase the receivables.
- Documentation Fees: The forfaiter may charge a fee for preparing and reviewing the necessary documentation related to the transaction.
- Legal Fees: Legal fees may be incurred in drafting and negotiating the forfaiting agreement, and the forfaiter may charge the exporter for these services.
It is essential for the parties involved in a forfaiting transaction to have a clear understanding of the fees and charges involved to avoid any misunderstandings or disputes.