Understanding Post-Shipment Financing
Post-shipment finance, also known as post-export finance, is a type of short-term credit facility provided to exporters in India to finance the period after the shipment of goods until the export proceeds are realized. It is designed to bridge the gap between the time of shipment and the time when payment is received from the overseas buyer. Post-shipment finance is a crucial component of trade finance that helps exporters manage their cash flow and working capital needs during the post-shipment stage of international trade.
Here are key features and aspects of post-shipment finance in India:
- Post-shipment finance is primarily used to cover the working capital requirements associated with the period after goods have been shipped but before payment is received. It helps exporters manage expenses related to documentation, transportation, and other post-shipment activities.
2. Types of Post-shipment Finance:
- Post-shipment finance can take various forms, including export bills purchased or discounted, advances against export incentives or subsidies, and export bills for collection. The specific type of post-shipment finance chosen depends on the exporter's needs and the terms offered by the lending institution.
3. Export Bills Purchased or Discounted:
- Export bills purchased or discounted is a common form of post-shipment finance. In this arrangement, the exporter presents the export bill (usually a bill of exchange or draft) to a bank or financial institution, which purchases or discounts the bill, providing immediate cash to the exporter at a discounted rate.
4. Advances Against Export Incentives:
- Exporters may receive export incentives, subsidies, or benefits from the Indian government for promoting exports. Some banks provide advances against these export incentives, allowing exporters to access funds before the incentives are received.
- Post-shipment finance is typically provided for a short duration, often ranging from a few weeks to a few months, depending on the exporter's requirements and the specific terms offered by the lending institution.
6. Interest Rates:
- The interest rates on post-shipment finance can vary based on market conditions, the exporter's creditworthiness, and the terms offered by the lending institution. These rates are usually competitive.
7. Documents Required:
- To avail post-shipment finance, exporters need to provide relevant documents, including the export bill, bill of lading, invoice, certificate of origin, and other documents related to the export transaction. These documents help assess the creditworthiness of the exporter and the viability of the export.
- The exporter typically repays the post-shipment finance facility once the export proceeds are received from the overseas buyer. This may involve using the proceeds from the export sale to settle the post-shipment credit, including any interest charges.
9. Regulatory Framework:
- The Reserve Bank of India (RBI) regulates and oversees post-shipment finance and export credit in India, setting guidelines and regulations to ensure smooth trade finance operations.
Post-shipment finance plays a crucial role in facilitating international trade by providing exporters with the necessary financial resources to manage expenses during the post-shipment phase and while awaiting payment from overseas buyers. It helps exporters operate efficiently, fulfill export orders, and compete effectively in the global market.