An export is termed as Cash Export if payment realized within 180 days.
Deferred Payment Export:
This is generally for large value export & for a longer period. Here, approval needs to be taken from RBI. In this export, payment is realized after 180 days.
At times, an exporter is required to execute export contract overseas, such as turnkey project, civil construction contract & infrastructure development projects. All such types of contract involve longer period for their execution and as such the export proceeds do not get realized into the country within 180 days, which is one of the main exchange control requirement. Therefore, export proceeds which are realized after 180 days are referred to as “Deferred Payment Export”
An export contract in which export proceeds realized after 180 days from the date of shipment is known as “Deferred Payment Export”.
The payment may be made by the overseas buyer over a period of time in installment. Depending upon the project, approval needs to be taken from RBI, Exim Bank, ECGC & Financial Institution.
When the period of the export project is up to 5 years, then such credit is called Medium Term Credit & when the period is in between 5 to 12 years, then such credit is called Long Term Credit.
The medium term credit facility is provided by the commercial bank together with the Exim Bank & the long term credit facility is provided by the Exim bank.
Exim bank has got a working group which includes the representative from RBI, ECGC, GOI, Bank to speed up the proposal clearance process. In the case of high-value contracts, finance ministry & commerce ministry representative also participate in the working group.
Amount of Credit Support:
- Any loan up to Rs. 10 crores for financing export of capital goods on deferred payment terms is sanctioned by the commercial bank which can refinance itself from Exim Bank.
- In the case of a contract above Rs. 10 crores but not more than Rs. 50 crores, the EXIM bank has the authority to decide whether export
- The contract above Rs. 50 crores need the clearance from the Working Group.
How The Payment Is Received?
The payment of goods sold as “Deferred Payment Terms” is received partly by way of advance or down payment & the balance being payable in installments spread over a period of time.
Other features of Deferred Payment Exports:
- Within 1 year repayment of principal should start
- Deferred payment receivables should be received in half yearly installments over agreed period of time.
- Down payment should not be less than 10% of the contract value.
- The rate of a commission should not exceed 5% of the contract value.
- Down payment & the receivables should be secured by co-acceptance, LC, Bank Guarantee, or Promissory Note from the foreign buyer banker.