Export Trade Finance - Forfaiting

Forfaiting is the service that Forfaiter(exporter's local bank) totally buy the confirmed documents (L/C has been confirmed/promised to be paid by issuing bank/confirming bank) from exporters' hand. Forfeiting has no recourse anymore.

In other words, Forfaiting is providing financing to exporters after receiving the confirmation that the exporter's L/C is promised to be paid by issuing bank without recourse. which means if the issuing bank refuses to pay, then the local bank(forfaiter) can't get the money from exporters.

Why companies choose Forfaiting? 

1. Exporters can have short-term financing without recourse. 
2. Exporters don't need to be worried about any risk in their business and risk shifted to the bank. 
3. Exporters can have immediate export rebates once Forfaiting service is done. 

Characters of Forfaiting

1. Financing after confirmation from issuing bank.
2. Forfeiting is expensive for exporters compared with discounting/negotiation
3. No limitation to the money financed for exporters.
4. The time range is different, normally <= 360 days, but some long-term trade can span across to 10 years.
5. A limitation to the bank performing the Forfaiting service. Normally the local negotiation bank has the ability to do Forfaiting service otherwise, it's hard for the bank to tell the veracity of the trading background or some documents. On other hands, if a bank only performing the Forfaiting service rather than negotiation service, then they can't maximize the profit.

Flows

1. Exporters apply for negotiation service/others in the local bank once they received L/C. 
2. The foreign bank(Issuing bank) gives a confirmation/promise to local banks saying they'll pay.
3. The local bank tells the exporter about (2). 
4. Exporter applies for Forfaiting service. 
5. The local bank accepts the application and signs the contract, then gives the money/finance to the exporter after deducting correspond expense + interest.
6. The foreign bank pays the money stipulated on L/C to the local bank(forfaiter) as time goes. 
7. The local bank receives the money and auto-deduct the financing cost from the exporter and closes the Forfaiting deal. 

Different Forfaitings

• Direct buyout. The local bank buyout all the account receivables under the L/C provided by the exporter. Then all the profit is gained without sharing any proportion with other banks. In this case, it means the foreign bank has a good reputation where The country it's in and the economy the country has is stable. So local bank chooses to buy all. 
• Indirect buyout(Risk participation). Bank A is doing Forfaiting with the exporter and have account receivables. Then Bank A sells this Forfaiting/account receivables to Bank B in a secondary market under his own concern(maybe afterward he thinks it has a risk). So Bank B is under an indirect buyout or it's normally called risk participation. Risk participation normally has 2 kinds: Funded and Unfunded. 

Funded Risk Participation

Bank B buy the Forfaiting/account receivables and pay the money immediately to bank A. From that time on, It's none of the business of Bank A anymore. All the risk or benefit shift to Bank B. 

Unfunded Risk Participation

Bank B buy the Forfaiting/account receivables and not pay the money to bank A. But compensate bank A  once foreign Bank refusing to pay or under bankruptcy.

Example: Bank A is primary forfeiter giving Exporter C forfeiting USD 18800.00.  Afterward, Bank A thinks this business has a big risk and negotiate with Bank B (secondary forfeiter) to do Unfunded Risk Participation to sell receivables. Bank B has a good relationship with the foreign issuing bank and thinks it's under control. So he agrees.  Bank B doesn't need to pay. Bank A gives money to Exporter C as normal. If in future, Foreign issuing bank refuses to pay / under bankruptcy, It's none of the business of Bank A/Exporter C. As Bank A does advanced payment to C. So Bank A has the recourse to Bank B but not to Exporter C.


Normally, For the secondary forfeiter under the funded risk participation, because he must pay the money in advance, so he will normally gain a good profit (The usual quote is: Libor + some margins), but under the unfunded, he doesn't need to do advanced payment, so has low profit.

Because Forfaiting is a financing service, So you can regard it as a loan. the quote is the interest rate you gotta pay the loan. which is also the profit the bank earns.

Difference between Forfaiting and Discount

1. Time Range different. Forfaiting < 10 years, Discount < = 1 Year.
2. Forfaiting has no recourse, Discount has. 
3. The financial report is different. Discount is liability under the company balance sheet. Forfaiting is an account receivable. 
4. Forfaiting can help the company get tax rebates in advance, but discount can't.
5. Forifating has a higher expense and interest rate compared with discount. 

Export Trade Finance - Discount

Discount is that banks buy some forward documents that are promised to be paid. In this case, banks have the Recourse. Forward documents mostly mean the bank documents or documents that other banks guarantee to pay with their own credit. L/C is one of the forward documents. So Bank buys your L/C and gives you money.

In practice, as the technology develops, forgery is advanced. So this service for banks has a high risk. Thus Documentary L/C seldom can get a discount.

For discount under L/C, the bank in exporter side receives the notice from issuing bank/confirming bank. This Notice is normally called Bank Acceptance, Which is a document with issuing bank's stamp saying I will definitely pay the money in a near future. But Exporters can't wait as they are short of money. So the exporter's local bank will give a finance to the exporter upon receiving the notice. This financing method is called the discount. The local bank giving this finance is called discounting bank. 

Moreover, Normally exporters take the L/C / export documents as the mortgage to the local bank to get the discount. export documents including the delivery order of goods. So the local bank can regard it as a future asset. in case they can't get the money, they can also sell goods/mortgage goods.

Discount is a financing method/loan. so exporter's must pay the interest as well which is the same as negotiation/packing loans we discussed before.

The similarity between discount and negotiation

1. Both are short-term financing service 
2. Both have recourse to the appliers.
3. Both have similarities in financing amount, interest calculation,  and currencies. 
4. Both have no limitation for the purpose of money usage. 

The difference between discount and negotiation

1. Discount is under some forward documents under L/C. So money can't be received in short run. Negotiation is applicable for both short /long term L/C. 
2. Financing time is different. Discount is financing upon confirmation from foreign banks. Negotiation is financing upon local exporters submitting some documents. so financing under negotiation should be faster and earlier than the discounting. 
3. The risk is different. Discount has the confirmation from foreign banks(issuing/confirming banks). so the risk is under the country/political/war risk, as long as the issuing bank not bankrupted/with a bad reputation, discounting bank doesn't need to worry so much. Negotiation is financing upon the beneficiary submitting documents, so some extra risks are involved like careless risk from the clerk, payment rejection from issuing bank etc. 

Export Trade Fiance - Negotiation under Documentary credit

Negotiation under Documentary credit is, under the export L/C, the beneficiary (Exporter) use some export documents as a mortgage to the local bank to do the financing before they receive the money from their buyers(importers).

Things to be noted:

1. The exporter must get the L/C first then apply for this financing before they receive the money from buyers
2. The mortgage must be the export documents.  Normally those export documents ≈ the L/C issued from issuing bank, so it has the value.  Thus, the local bank in exporter side can still sell or do some secondary mortgage in the secondary market to distribute the risk.

Why exporters use this service?

The exporter can do some short-term financing to accelerate the capital turnover and increase the exportation scale as well.  It only takes the documents as mortgage, so it is comparatively easier to get the money for exporters under L/C.

In other aspects, under the circumstances of local currency appreciation, the negotiation can turn the foreign currency into local currency earlier, so it is also a way to avoid the FX risk.

For example, Chinese Firm A choose L/C as the settlement method,  exports to Turkey some fibers valued USD 1000000.00. on 20/07/2005, and submit the L/C to a local bank. Under this L/C, the payment criteria are after 180 days of the submission of L/C. On that day, the FX is USD100 = CNY826.46, and firm can enjoy the USD interest rate 5.5% pa.  When RMB appreciates, Firm A has 2 choices :

1. Finance manager may think, even though the negotiation can turn the future-received USD into CNY to use now and avoid the FX risk. However, The company must pay the interest to the local bank (Interest cost). At that time, the USD/CNY 6-month forward FX settlement is discount. (6-month later's settlement price < current settlement price) . So compared with the current settlement price, the company has some loss. The finance manager decides not to use this service and collect the money when L/C matures. On 25/01/2006, Firm A received the money from the foreign bank. Due to an appreciation of RMB of 2 % on 21/07/2005. the exchange rate on 25/01/2006 is USD100=CNY800.06. And after deduction USD 1350 service charge from the bank, The money received in the end is (USD1000000.00 -USD1350.00) * 8.0006 = 7989799.19 yuan.
2. Finance manager considered the interest cost if apply for the negotiation but can avoid the FX risk and increase the capital turnover. So on 21/07/2005, firm A does the negotiation. the total interest cost for this service is : 

USD 1000000.00 * 5.5% * 180/360 = USD27500.00

       The earning in the end is :
             (USD1000000.00 - USD1350.00 - USD27500.00) * 8.2646 = 8026166.29 yuan

So the comparison between choice 1 and choice 2 is

8026166.29 - 7989799.19 = 36367.10 yuan

So Choice 2 is better. And this hasn't added into the RMB saving interest benefit of 180 days.


Characters of Negotiation :

1. This financing method is used after L/C is issued 
2. This financing method's time is short, normally <= 360 days. However, for Big Equipment exportation, the receivables time is 3 ~ 5 years, so in practice, the negotiation service is also 3 ~ 5 years. So, multiple negotiations are involved, each of which is <= 360 days as well. 
3. For banks to conduct this service, there is a limitation for the bank. Only negotiation bank/issuing bank/confirmation bank which is related to the L/C can conduct this service, otherwise, it's hard for other banks to tell the veracity of documents which involves a big risk. On the other side, if a bank only conducts the negotiation service for this L/C but not other correspondent services related to the L/C, (eg: L/C issuing, L/C processing), it can't maximize the profit for the bank. So banks only continue to do those negotiations for L/C issued himself.
4. Bank has the right of recourse, normally, the prioritized money source is from L/C, if the company can't timely receive the money from foreign clients, the export company must pay the bank principal + interest or auto deduct from company's bank account by the bank.

Procedures of Negotiation:

1. The export firm receives the L/C from foreign clients, then do the negotiation service from a local bank to get some financing.
2. Firm and local bank sign contract/agreement for this. stipulating fee and conditions. 
3. Bank from foreign client-side/Foreign Bank (L/C issuing bank/confirming bank) give the money to bank from exporter side (local bank/L/C Negotiation bank) when L/C matures. 
4. The local bank receives the money from the foreign bank and helps the applicant (exporter) pay the principal + interest(fees) in this bank and transfer the remainings into exporter's private bank account and inform the exporter in the end. 

How to calculate the interest?

Banks conducting the negotiation service normally don't collect fees but only collect the interest.

Negotiation interest  = Neotiation amount * interet rate * days/360

Exporter's receivables = negotiation amount - negotiation interest - bank fees

How does bank calculate Negotiation amount : 

Negotiation amount, in theory, can be 100% of L/C invoice amount. However in practice banks normally collect the interest in the first place (give out the money to exporter after deducting the interest first), so it's < 100% of L/C.

Under some circumstance of export, invoices stipulate some discount/commission
the negotiation amount shouldn't include them. For example, in a commercial invoice,

Total amount : USD100000.00,

Commission: 2%

Maximum negotiation amount : USD98000.00

Under some circumstance of export, some country has stamp duty tax, the export invoice amount and L/C amount has differences. then the bank will consider the lower one of 2 amounts.

Export invoice: USD98000.00,

L/C invoice amount: 95000.00%

Maximum negotiation amount : USD95000.00

How does bank confirm the interest rate :

Financing interest rate = Libor + Margin (0.5% ~ 1.5 %)

Difference between Packing loan and Negotiation :

1. Mortage is different, Packing loan takes the L/C as mortgage and negotiation take the documents as the mortgage.
2. Loan Amount is different, packing loan's loan amount <= 90% of L/C. Negotiation's loan amount <= 100% of some export bill/invoices. 
3. Usage is different. Packing loan's money can only be used for production/transportation... not some fix asset procurement. Negotiation's money has no limitation. 
4. Pressure is different. Packing loan is a financing method before all the documents ready. So exporter's pressure is little and it's good. Negotiation is a financing method after all documents ready. Exporters must produce, transport ... first incurring some expenses documents. So exporters have certain pressure. 

Convert HTML Table into EXCEL , MS Word , PDF in Java

Report generation in different formats is troublesome in most of the projects. However, there still is an easier way to do for experienced engineers. Here I will recommend a jar which can directly convert any HTML Table with CSS into 3 Main report formats (EXCEL, WORD, PDF). This project saves developers tons of efforts to manually write a utility class to parse the XPath in Apache POI or Doc4j and generate reports. here is the address :

https://github.com/alanhay/html-exporter

Here is the code example :

public static void main(String[] args) throws FileNotFoundException, IOException {
  
 String html = IOUtils.toString(new FileInputStream("./Sample.html"));
  
 new ExcelExporter().exportHtml(html, new File("./report.xlsx"));
}

If you are using this jar, 3 points need to be noted :

1. CSS Style must be defined in the <Style> tag.

<style type="text/css">
.pNewCounter {
  background: #FFC000;
 }

table, tbody, tfoot, thead, tr, th, td, footer, header {
  margin: 0;
  padding: 0;
  border: 0;
  font-size: 100%;
  font: inherit;
  vertical-align: baseline;
 }
</style>

                    2. Date format data must have data-date-cell-format attribute                              

   <tr>
          <td>Creation Date</td>
   <td data-date-cell-format="dd/MM/yyyy">06/08/2018</td>
   </tr>

3. Text Data must have data-text-cell attribute

    <tr>
   <td>Offer Expiry Date</td>
   <td data-date-cell-format="dd/MM/yyyy">14/09/2018</td> 
  <td data-date-cell-format="dd/MM/yyyy">14/09/2018</td>
    </tr>
 
 
    <tr>
   <td>Offered Amount</td>
   <td data-text-cell='true' >3,500,000.00</td>
                <td data-text-cell='true' ><strong>3,600,000.00</strong></td>
   </tr>
 
 
    <tr>
   <td>Offered Amount (%) </td>
   <td data-text-cell='true' >35.000%</td>
                <td data-text-cell='true'><strong>36.000%</strong></td>
    </tr>

Sample HTML :

https://github.com/callow/html-exporter/blob/master/Sample.html

Converted Result :

https://github.com/callow/html-exporter/blob/master/report.xlsx