A forfaiting transaction typically has 3 cost involved
- Commitment Fees
- Discount Fees
- Documentation Fees
1). Commitment Fees:
A commitment fee is a banking term used to describe a fee charged by a lender to a borrower to compensate the lender for its commitment to lend. Commitment fees are typically associated with unused credit lines or undisbursed loans. The lender is compensated for providing access to a potential loan through a commitment fee since it has set aside the funds for the borrower and cannot yet charge interest.
- Ranges between 0.5% to 1.5% of the amount.
- The commitment fee is payable regardless of whether the export contract is executed or not.
- It is payable by the exporter to the forfaiter.
2) Discount Fees:
- It is the interest cost payable by the exporter for the entire period of the credit involved
- It is deducted by the forfaiter from the amount paid to the exporter against the avalised promissory notes or bills of exchange
- The interest cost is based on LIBOR + Premium.
3) Documentation Fees:
- Generally, no documentation fee is incurred in a straight forward transaction.
- If extensive documentation is involved & a legal framework is necessary, a documentation may be changed.