It is provided to the exporter when they ask for a certain amount of payment for arranging various necessary things such as raw materials. This finance is needed for processing raw material into finished goods. Once the processing is done they have to be stored at relevant places and for that some cost has to be paid. Also for packing and shipment of goods to the port finance is needed. Exporter can apply for this finance once order is confirmed by the buyer and its proof have to be shown in the finance institution for further processing. It is granted for 180 days. If some kind of uncertainty occurs then this can be extended to 90 days. Maximum allowable period is 270 days.
Once the shipment of goods towards importer is done the exporter is supposed to make bill that has to be paid by the importer. It’s a lengthy process and takes almost 3 to 6 months to receive the payment from the importer and meanwhile production of exporter can get affected. So to avoid this exporter presents this bill in the finance institution which will pay for the wages and other services such as shipping charges. Post shipment credit is basically to help the exporter financially till payment from importer is received. So the production and others work keeps on going.
The finance can be obtained by the supplier/exporter on the basis of bills of purchase made by the importer. If in case any default occurs, the finance institution has to compensate almost 80% of the default amount. It can be considered as post shipment finance.
If uncertain circumstances occur then there is an unexpected rise in expenditure that might be due to national and international changes, the government has to provide allowances or subsidies for export of commodities that too at reduced price to the importer.
Number of institutions has emerged in providing export finance and adding on existing institutions has opened up various avenues for granting export finance. Following are the major sources for providing export finance to the exporter:
1. what is meant by pre-shipment finance?
Pre-shipment finance is the finance required by an exporter before the shipment of goods. Pre-shipment finance provides the exporter with working capital required for funding of wages, production cost, buying raw materials, processing and converting into finished goods and packaging. Pre- shipment finance is extended under the concessional rates of interest at 7.5 per cent, to a maximum period of six months.
2. What does post shipment finance mean?
Post-shipment finance refers to the finance extended after the shipment of goods. In this type of export finance, the financer advances the payment, post shipment, to gain liquidity between shipping the goods and receiving payment. It mostly bridges the gap between the date of extending the credits after the shipment of goods to the date of realization of the export proceeds. Post-shipment finance is extended under the concessional rates of interest at 8.65 per cent, to a maximum period of six months.
3. Why post shipment credit is required?
In order to accomplish a number of tasks and other orders an export requires certain amount of money which gets fulfilled by post shipment credit. It is important to maintain the workflow within the organization.
4. How does export finance work?
Export finance provides a way for businesses in order to release working capital, specially from overseas transactions which may remain tied up within the invoices for a much longer period of time. Export finance is very specifically tailored to cope up with the overall financial demands of business companies who are involved in International trade. Know More.Difference between invoice factoring and discounting
5. What are the sources of export finance?
Commercial Banks Export Intermediaries Multilateral Development Banks(MDBs) State and Local Export Finance Programs Government Assistance Programs
6. What are the four different methods of export financing?
Export Development and Working Capital Financing Facilities Development Financing Financing for your International Buyers Investment Project Financing
7. What are the export payment terms?