Domestic letter of credit forfaiting business is when the buyer and seller sign a commodity purchase and sales contract.

According to the purchase and sale contract, the buyer applies to the buyer's bank for a domestic letter of credit with the seller as the beneficiary.

The buyer's account bank will approve the buyer's credit and review the content of the purchase and sale contract. If the conditions are met, a domestic letter of credit will be issued and sent to the seller's account bank.

After verification by the seller’s bank, the letter of credit will be delivered to the seller (beneficiary).

The seller (beneficiary) requires delivery according to the commodity purchase and sale contract and obtains the documents specified in the letter of credit.

The seller (beneficiary) shall present the documents and the original domestic letter of credit to the seller’s account bank within the validity period of the domestic letter of credit and handle entrusted collection.

For example: Company A, a high-quality enterprise, regularly purchases from subsidiaries within the group. Previously, Company A used current loans in our bank. Due to the tight size of current loans, pricing requirements are high.

After marketing, it was changed to a forward domestic letter of credit settlement method. Company A applied for a domestic letter of credit with our bank, and the subsidiary applied for a forfaiting.

Plan: It is inconvenient for Company A’s suppliers to open an account with our bank. It is recommended that Company A sign a tripartite agency agreement with the supplier and our bank for forfaiting, so that the supplier can be exempted from opening an account with our bank. At the same time, Company A proposed that the interest should be borne by it and provided the customer with a plan to sign a buyer's interest payment agreement and have the issuer pay the interest.

In recent years, domestic commercial banks have learned from the forfaiting business model of international letters of credit and have innovated negotiation, self-operation, resale, package purchase and agency forfaiting on the financing side after the issuance of domestic letters of credit. and other products. This business not only solves the financing problem for the real economy, but also promotes extensive cooperation among commercial banks because it combines some characteristics of letters of credit and the financing function of forfaiting.

Extended information:

The exporter receives the forward certificate and consults the local bank whether it can be forfaiting. The bank will quote the price. The exporter will determine whether to do forfaiting after calculation.

If confirmed, the exporter signs a forfaiting contract with the bank, and the exporter submits the documents for negotiation. After negotiation, the buyer is urged to go to the paying bank to accept the bill as soon as possible. The exporter's bank receives the prompt from the issuing bank. After receiving the acceptance instructions, the forfaiting interest will be deducted and the balance will be remitted to the account designated by the exporter.

Forfaiting business is a new type of trade financing business and a financing method for enterprises to obtain payment for goods in advance. Its biggest feature is that it has no right of recourse. By handling forfaiting business, enterprises can obtain 100% convenient and fast financing from banks without occupying bank credit lines.

Zeng Huahui, director of the business department of Bank of China Jingmen Branch, said that letters of credit, bills of exchange, promissory notes, payment guarantees, claims guaranteed by standby letters of credit, etc. can all be classified as forfaiting buying business.

People's Daily Online: Jingmen Bank of China's forfaiting business is "awesome" for small and micro businesses to collect payments