Order Substitution:

If PC is liquidated by submitting the export documents  of some other export order for which no PC is availed. Then such substitution is termed as Order Substitution.

e.g. If PC is availed for an export order A can be liquidated by submitting of the export documents of the export order B. Here, for export order B, no PC is availed.

PC loans are normally adjusted only out of the bills under relative order / LC. If for reasons beyond the control of exporter, the order is canceled or delayed, substitution of orders is permitted. The substituted order may be for different goods, from the different buyer, from a different country. A bill given against where no PC has been availed earlier can also be utilized to adjust any other outstanding Packing credit.

These relaxations should not be extended to transactions of sister / associate / group concerns.

Running Account Facility:

In general, PC is only given against confirmed export order or export LC. But when PC is allowed in the absence of confirmed EO or export LC then such facility is called as Running Account Facility.

Why is it needed?

  • It is observed that the availability of raw materials is seasonal in some cases.e.g. agro products.
  • In many cases, the exporters have to procure raw material, manufacture the export product and keep the same ready for shipment, in anticipation of receipt of an export order.

Eligibility Criteria For RAF:

Depending on the bank’s judgment regarding the need to extend such a facility and subject to the following conditions:

  • To exporters, whose track record has been good.
  • To Export Oriented Units (EOUs)/ Units in Free Trade Zones / Export Processing Zones (EPZs) and Special Economic Zones (SEZs)
  • The exporters to whom this facility is allowed will be required to produce letters of credit/firm export orders within a reasonable; period of time.
  • The banks shall mark off individual export bills, as and when they are received for negotiation/purchase/collection, against the earlier outstanding pre‑shipment credit on ‘First in First Out’ (FIFO) basis.
  • The banks can also mark off the packing credit with proceeds of export documents against which no packing credit has been drawn by the exporter.
  • The benefit of concessional rate of interest will be permitted up to the period of sanction or 360 days from the date of advance, whichever is earlier.
  • If any exporter is found abusing the facility or does not comply with the above terms and conditions, the facility of running account will be withdrawn.
  • Running account facility are not granted to sub‑suppliers.
  • In cases where exporters have not complied with the terms and conditions, the advance will attract commercial lending rate ab initio.