A purchase of a receivable from a letter of credit payable in the future without recourse is one of the forfaiting options. It is a purchase (assignment) of a receivable of exporter before its maturity that arises from a letter of credit. The purchase is performed without a recourse against the seller of the receivable.

Purchases are agreed based on presented letter of credit documentation proving the existence of an irrevocable letter of credit with deferred maturity or draft acceptance issued or confirmed by a quality bank. The receivable is then paid after presenting the letter of credit documents for each individual drawing and other documents specified by the Export bank, however always after the unconditional acceptance and confirmation of the letter of credit documents by the issuing/confirming bank or after a lapse of time specified by UCP rules during which the L/C bank did not reject the documentation. The agreement on forfaiting can thus be made before or after the receivable from a letter of credit comes into existence.

The purchase itself always happens only after the receivable has already come into existence. Assigned receivables have to be connected with export of goods or services exclusively by the Czech companies. An exporter has to meet his obligations to prove the purpose of forfaiting - he presents an export contract to prove the export and (usually as a part of letter of credit documentation) an export invoice and documents proving that the export actually happened.

Assigned receivables from an irrevocable letter of credit do not necessarily need to be insured against export credit risk (it depends on the L/C bank´s rating). However, they have to be secured before their assignment by way of security assignment of a receivable from the export contract to Česká Exportní Banka.

Financing receivables from letters of credit by forfaiting has the following benefits for an exporter:

• by assignment the exporter removes the receivable from his balance sheet, he improves his liquidity and clears the credit limit with his bank,
• since there is no recourse from the side of the purchasing bank, the exporter gets rid of all risks from his export operation,
• usually, there is no need to take out export credit insurance of the assigned receivable,
• the receivable is purchased in its full value (100%), i.e. without participation by its original owner and is based on a fixed discount rate specified beforehand,
• negotiating the assignment of receivables from letters of credit is much faster and easier in comparison with negotiating a credit.