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Types Of Post-Shipment Finance

Types of Post Shipment Finance

Below are given the following post shipment finance:

  1. Export Bills Negotiated under L/C: if the exporter wants to get a documentary letter of credit and has already done the procedure i.e., submitting the required documents, as the UC mentions, to the bank, the bank is then supposed to negotiate with the exporter and give him the equal amount of post-shipment finance. We should keep in mind that this amount is only given to the exporter when it is converted into liquid form.
  2. Purchase/Discount of Export Bills:  there are chances of the post-shipment finance to get increased either through purchasing or giving a discount on the export bill. But this is only possible when the export bills are not covered under credit letter. Before forwarding this opportunity to the exporter, the bank ensures that the exporter has all the details and knows the terms of the export contract.
  3. Advance against Bills sent for Collection: Post-shipment amount can also be given When the assistance available under foreign bills purchased has exceeded the limit or when export bills that are drawn under L/C create issues or when it is mandatory to do so in the particular line.
  4. Advance against Goods sent on Consignment Basis:  When goods are exported on the basis of agreement, post-ship finance is received only after the goods are sold. In this case, the exporter’s bank of the other country has to deliver documents against Trust receipt and then only the post-shipment advance is adjusted.
  5. Advance against Duty Drawback: The Government also play a role here by providing incentives to the exporters for example the duty drawback (DBK), these incentives are only provided to the exporters when the shipment of goods and receipts take a step further. Banks offers incentives for both pre-shipment and post-shipment.
  6. Advance against Undrawn Balances:  in some export markets, exporters do riot draw bills so that they get the full GST value of the goods yet they leave a little amount undrawn which is used further for adjustments so that differences can be seen in rates, weight quality etc. Though these differences gets adjusted once the goods are approved. Banks offer post-shipment finance for these balances.
  7. Advance against Retention Money:  In the case of exports of capital goods contracts, the importer’s role is to ensure that the project will be completed. He only gives the surety after he or she attains a particular amount from the contract signed. The unpaid part is called retention money. Here also the bank offers post-shipment finance against the amount like these for a period of 90 days.
  8. Advance against Deferred Payments:  In case of exports of capital goods or construction contracts, exporters receive some amount of the contract, it might be an advance or we might call it some down payment while other remaining balance is received in instalments.

Features Of Post-shipment Finance

The following features of post-shipment finance are mentioned below:

  1. Eligibility: Post-shipment finance is availed by several types of exporters such as:
    • Merchant exporters
    • Manufacturer exporters
    • Export houses
    • Trading houses
    • Manufacturers that supply goods to Export Houses (EH), Trading Houses (TH) or merchant exporters.
  2. Documentary Evidence:   Following are the documents through which the exporters can avail the post-shipment finance facility:
    • Shipping documents which states the fact that the goods are actually shipped for export purpose and no other purpose is being entertained.
    • Necessary documents which ensures that the facility under which the credit has been availed.
    • A letter by the export house which certifies that the goods which are being supplied by him is actually being shipped to your country only for export purpose.
  3. Purpose: Post- shipment finance is usually given for the following purposes:
    • To fill the gap between the shipment of goods and releasing the sales proceeds. This gap can only be released by providing working capital.
    • To pay insurance charges so that there is a surety that insuring of the goods has been done.
    • After post-shipment finance is given to you, you can pay ECGC premium which ensures commercial and political risks.
    • Commission and brokerage can only be paid after post-shipment finance has been provided to you.
    • In order to undertake all the export promotion activities and advertising.
  4. Amount of Finance:  Post-shipment finance can be granted equivalent to 100% of the GST value of the goods that are exported.
    • Loans up to Rs. 10 crore are provided to the exporter by the commercial bank, which you can easily refinance from the EXIM Bank.
    • Loans above Rs. 10 crore but up to Rs. 50 crore are also provided to the exporters by the EXIM bank.
    • Loans above Rs. 50 crore need clearance from the working group on export finance, which consists of the representatives of the EXIM Bank, the RBI, the ECGC and the exporter's bankers.
    • Trading houses
    • Manufacturers that supply goods to Export Houses (EH), Trading Houses (TH) or merchant exporters.
    In case the contract is very large, they include representatives from the Ministries of Commerce and Finance in the working group.
  5. Period of Credit and Rate of Interest:  you can also get Post-shipment finance for short-term, medium-term or long-term.
    • Short-term finance is extended usually till the period of 90days.
    • Medium-term is usually extended till the period of 90days to 50 years by the commercial bank.
  6. Distribution of post-shipment finance: before the loan is distributed, bank has a task of examining the application and all the necessary documents.
  7. Maintenance of Accounts, Monitoring and Repayment:  According to the RBI directives, the banks have got a role of maintaining a separate account of each packing credit. However, running accounts are only given permission if the exporter is situated in FTZs, EPZs and the 100% EOUs.
    Post-shipment finance should be used and should be limited only for the purposes for which it is responsible. Hence, the lending bank keeps an eye on the use of finance by the exporter in every area. If there comes any default from the side of the exporter, it will charge him with a high rate of interest.
    Post-shipment finance is mainly responsible only for the incentives given by the government or against the export proceeds received by the bank. We shall keep in mind that you cannot use the post-shipment finance for the local funds.