Since its establishment in 1984, London Forfaiting Company (LFC) has focused on providing effective, customised trade finance solutions to its clients. Today, LFC is probably the largest independent provider of such services.
LFC offers its customers an extensive range of country risk capacity, as well as trade finance solutions delivered with the speed and flexibility required to allow its customers to better compete in the global marketplace. “London Forfaiting Company Ltd has been engaged in export and trade finance since 1984. As one of the earliest pioneers in the market, LFC has always been at the forefront of developments in the forfaiting and trade finance services industry. We try to ensure that exporting, importing and banking clients alike continue to benefit from the experience and expertise garnered by London Forfaiting over the years,” says Simon Lay, chief executive officer.
Lay explains that even though global trade finance markets are now extremely competitive, there is a growing need for institutions like LFC who can offer specialist expertise concerning emerging markets. “Over the years, we have seen a great reduction in barriers to entry in many global markets, particularly thanks to the evolution of internet-backed products and services. Information is more widely available, and the internet offers a much broader potential customer base to exporters,” he says.
However, the breakdown of these barriers has also brought with it increased competition, making it even more important to differentiate one’s offer from the competition’s. “The best way to do this is to deliver a better product, deliver it quickly and efficiently, and most importantly, to deliver value for money and a better quality service,” says Lay. Consequently, knowledge of foreign market conditions, documentation and trading requirements, coupled with a fast, efficient, quality service which helps exporters get their products to their customers, have never been more important factors in winning new business.
LFC differentiates itself by providing a dedicated and specialist service to exporters and importers who are trading in emerging markets. “We are constantly trying to anticipate and adapt to the rapidly changing needs of the market, in order to maintain the company’s position as the leader in forfaiting. It is not enough to simply have capacity for business in selected countries, you need to be able to offer a truly global range of solutions to clients. Sometimes, price will be the determining factor, but often, other less tangible components play an equally important role. Your ability to partner effectively with a client, in order to help them secure an export contract and your track record in this regard, can be a compelling argument as to why they should opt for your services,” says the LFC CEO.
In many emerging markets, buyers are likely to put more emphasis on cashflow rather than cash price, and the availability of extended payment terms can greatly improve the chances of winning a contract. By focusing negotiations on credit terms offered, exporters may face substantially less pressure to reduce prices, which in turn may mean better sales margins and higher profitability.
On the other hand, exporters, who prefer being paid in cash in order to avoid exposure to the costs and risks associated with providing financing, regularly opt for forfaiting as a trade finance tool to facilitate this process.
The rise in competition means that LFC has to meet increasingly demanding standards to remain at the forefront of forfaiting. Although these standards are raised every year, the superior level of LFC’s service continues to be recognised by the market through the award of numerous industry accolades, including that of Best Forfaiting House, which has been presented by GTR to LFC on many occasions.
According to Tony Knight, head of trading at LFC, “winning industry awards helps LFC judge how well we are meeting the needs of our clients in terms of the validity of our products and the quality of the service we provide, as we have a broad spectrum of clients and counterparties, ranging from SMEs to large financial institutions”. Knight goes on to say that these accolades help affirm “LFC’s eminent position in the forfaiting market, while giving us further impetus to develop and evolve. This enables LFC to meet the changing needs of our forfaiting clients while striving to stay ahead of the competition.”
To maintain its competitive edge, the company employs a team of professionals with backgrounds ranging from commercial and investment banking, to industrial manufacturing and sales. LFC’s clients are therefore assured of the highest level of service by a team which offers a wealth of specialised experience, in-depth knowledge of foreign markets, and a broad range of language skills, backed by an extensive global office network.
The fact that LFC forms part of the KIPCO Group further boosts its position in global markets. Burgan Bank SAK and United Gulf Bank BSC, two highly reputable financial institutions forming part of the Kuwaiti conglomerate KIPCO Group, own an 80% stake in LFC’s parent company, FIMBank plc. This means that LFC and the FIMBank Group now have much more scope to take on new business opportunities.
Forfaiting has evolved considerably over the last 20 years and now encompasses many more instruments, structures and concepts. As a versatile and flexible approach to raising finance for the international trade community, it has significant benefits for both exporters and importers.
Consequently, LFC is constantly pushing the boundaries of forfaiting, and whilst the non-recourse discounting of receivables continues to be a core part LFC’s business, this is just one element of the dynamic and extensive range of facilities provided to clients to ensure their financing needs are met.
An illustration of the flexibility of forfaiting is its use in conjunction with export credit agencies’ (ECAs) credit facilities. ECA-backed finance is often restricted to 85% of the value of the goods. Forfaiting can work alongside ECA arrangements to finance the uncovered portion, the down payment, or any ineligible foreign content.
LFC’s head of UK marketing, Ian Lucas, was instrumental in the recent addition to the company’s product suite of the working capital and bond support schemes, in conjunction with the UK’s ECA, UK Export Finance (UKEF).
LFC remains the only non-bank institution accepted by the UKEF as a participant in both these schemes.
Lucas comments: “As a company specialised in the arrangement and provision of forfaiting and other trade-related finance products, LFC is constantly seeking new and innovative ways of expanding the range of products and services it can offer its broad client base. We look forward to continuing to work with the UKEF to support the export financing requirements of our customers.”
A further illustration of LFC using forfaiting in innovative ways is its foray into the world of football finance. Working primarily with football clubs based in the UK and Europe, LFC has developed financing techniques which allow clubs to accelerate the cashflow of receivables, including player transfers, broadcasting rights, sponsorships, as well as Champions League and domestic league revenues.
“Whilst football financing is undoubtedly a very specialist area, and there are complications arising from the way in which clubs are financed in different jurisdictions, the discounting of future cashflows from receivables is a perfect adaptation of LFC’s financing products and is well suited to LFC’s capabilities,” says Lucas.
In discussing the current market conditions for forfaiting, Lay observes that during the last few years, depressed commodity prices had forced an extended period of consolidation in the global commodity and trade finance markets.
Lay considers that as a result “banks reacted by taking a much more conservative stance, actively ‘de-risking’ by reducing both lines and client relationships within their portfolio. Many banks would only consider a more selective and shrinking pool of country/credit risks. In addition, emerging market risk increased significantly. Many petro-based economies, particularly in Africa, faced with falling oil revenues and commodity prices, struggled to manage their foreign exchange cashflows.”
In conclusion, Lay believes that a consequence of these difficulties has been a significantly increased demand for LFC’s products and services. He attributes this to “clients understanding that in a bull market, it is relatively easy to finance your trade flows through a wide range of international banks. However, when market sentiment turns bearish, it is important to have good relations with more specialist institutions like LFC, who can help you find solutions and exploit opportunities, when faced with more challenging conditions.”
Although world trade and emerging market conditions look set to remain difficult for some time, LFC can see lots of opportunities on the horizon. Having completed over 30 successful years of financing trade receivables, the company is looking forward to achieving further growth, development and success.