Post-Shipment Finance

‘Post-shipment Credit’ means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realization of export proceeds as per the period of realization.

Being a short-term working capital finance, provided against the export receivables from the point of submission of export documents till the date of realization.

Post-shipment Finance can be classified into 5 types

  1. Advance against bill sent on consignment basis
  2. Advance against undrawn balances
  3. Advance against government receivables
  4. Export bills purchased/negotiated/discounted
  5. Advance against bills sent on collection basis

1). Advance against bill send on consignment basis:

Bank may choose to finance when the goods are exported on a consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee (with recourse).

However, in this case, bank instructs the overseas bank to deliver the document only against trust receipt /undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date.

2) Advance against undrawn balances:

It is a very common practice in export to leave small part undrawn for payment after adjustment due to the difference in rates, weight, quality etc.

In the case of certain commodities where exporter are required to draw the bills on the overseas buyer up to 90% to 98% of the FOB value of the contract the remaining amount being “undrawn balance” is payable by an overseas buyer after satisfying himself about the quality / quantity of goods. The bank may grant advance against such undrawn bills at a concessional rate for a maximum period of 90 days. After 90 days, the bank may charge ECNOS.

3) Advance against government receivables:

Advance can be given against entitlements like Duty Drawback Scheme, Export incentives scheme etc. These advances granted at a concessional rate of interest up to a maximum period of 90 days from the date of advance.

4) Export bill Purchased / Negotiated / Discounted:

Bill Purchased:

In bill purchase, time period allows for the realization of documents on the sight basis (Dp) is 25 days. This period is called Normal Transit Period (NTP). Here, the foreign buyer is supposed to pay at sight once the goods are shipped.

As per bank, under sight bill, if the realization of export proceeds doesn’t effect after the grace period (3 days) granted later to normal transit period, such bills are treated as overdue bills.

Bill Negotiated:

The term export bill negotiation arises when the shipment is under the letter of credit basis. Here, bank negotiates the bills upfront & provide an advance to the exporter. This advance may range in between 80% to 100% of the invoice value.

Export bill negotiation is a without recourse (as LC has been opened in the favor of the exporter) facility as in this case the LC issuing bank will make the payment.

Bill Discounted:

Financing extended in case of non-LC bills is termed as export bills discounted or purchased. This type of financing is extended against the limit or credit lines sanctioned to the exporter.

This financing is with recourse, which means that if the payment is not received on the due date the loan will be liquidated by debiting exporter’s account.

5) Advance against the bills sent on collection basis:

Bills can only be sent on the collection basis if the bills drawn under LC have some discrepancies. In such cases, the bank considers the documents as DP basis.

Note: It is up to the exporter to take both pre & post shipment finance or either of one.

Normal Transit Period:

‘Normal transit period’ means the average period normally involved from the date of negotiation / purchase / discount till the receipt of bill proceeds in the Nostro account of the bank.