A forfaiting transaction typically has 3 cost involved

  1. Commitment Fees
  2. Discount Fees
  3. 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.
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