Post Shipment finance

Post shipment finance

Collection of documents under D/P & D/A
Need for post shipment finance
Negotiation of export documents under letters
of credit
Purchase/Discount of export documents under
confirmed orders / export contract

 It is provided to meet working capital

requirements after the actual shipment of goods
It bridges the financial gap between the date of
shipment and actual receipt of payment from
overseas buyer.

Nature of Post shipment finance

any loan or advance granted or

any other credit provided by an institution
to an exporter of goods from India
from the date of extending the credit after
shipment of the goods to the date of realization
of exports proceeds and
in consideration of, or on the security of,
any duty drawback or
any other incentive receivable from Government
of India

Features
Eligibility:
It is extended to actual exporter who shipped the
goods

Purpose:
It provides working capital to the exporter from
the date of shipment to the date of realisation of
export proceeds

Documentary evidence:
Shipping documents indicating the actual
shipment of goods

 Forms of shipment finance:

Export bills negotiated under LC
Purchase of export bills drawn under confirmed
contracts
Advance against export incentives receivables
such as DBK
Advance against goods sent on consignment basis
Advance against deemed exports

 Amount of post shipment credit

The amount of finance depends on whether short,
medium or long term.
It also depends upon the value of capital goods
and equipment or turnkey projects
Any loan upto Rs10 crore for financing export
decided by commercial bank which can refinance
itself from EXIM bank
10 50 crore - EXIM bank provides finance

 If the contract exceeds 50 crore, they need

clearance from working group consisting of
representatives from EXIM Bank, RBI, ECGC
and bankers of the Exporter.
Ministry of Commerce and Finance also act as
member of Working Group

 Period:
Short term usually 90 days provided by
commercial banks
Medium term 90 days to 5 years provided by
commercial bank and EXIM Bank
Long term 5 years to 12 years provided by
EXIM Bank in case of sale of capital goods, P&M
and turnkey projects

 Rates of Interest:
At concessional rate of interest of 13% for 90 days
For medium and long term rate of interest is
applicable as per the direction of RBI from time to
time.

Loan Agreement:
Before disbursement of loan, the bank requires
the exporter to execute a formal loan agreement

 Maintenance of Accounts:
Bank must maintain separate account in respect of
each

Disbursement of loan amount:

Not sanctioned in lump sum but in a phased
manner

Monitoring the use of advance given

 Repayment:
As soon as the export proceeds & incentives are
received, the exporter should repay the amount to
bank advancing credit.

IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE

To pay to agents/distributors and others for

their services.
To pay for publicity and advertising in the over
seas markets.
To pay for port authorities, customs and
shipping agents charges.
To pay towards export duty or tax, if any.
To pay towards ECGC premium.
To pay for freight and other shipping expenses.

 To pay towards marine insurance premium,

under CIF contracts.
To meet expenses in respect of after sale service.
To pay towards such expenses regarding
participation in exhibitions and trade fairs in
India and abroad.
To pay for representatives abroad in connection
with their stay board.

Methods of Post
shipment finance

Export bills negotiated under LC

The exporter can claim PF by drawing bill or draft
under LC.
The bank insist on the necessary documents as
stated in LC
If all the documents are in order, the bank
negotiates the bill and advance is granted to the
exporter.

Documents to be verified

Sight or Usance bill of exchange

Commercial invoice
Packing invoice
Bill of lading / airway bill
Certificate of inspection
Marine insurance policy
Any other document as required by the buyer
GR form
Original letter of credit
Certificate of foreign inward remittances in case of
advance payments

 Purchase of Export bills drawn under confirmed

contracts
The banks may also sanction against purchase or
discount of export bills
If the LC is not available as security,
the bank finances upon the credit worthiness of
the exporter and importer.

 The characteristics of the product such as nature, quality

and price of goods are also considered
If the product is of international standard and has good
overseas demand, the banks are more willing to offer
advance

 Advance against bill under collection

In this case the advance is granted against bills
drawn confirmed export order LC and which are
sent for collection
They are not purchased or discounted by the bank

Document against Payment (D/P)

It is sometimes also referred as Cash against
Documents/Cash on Delivery.
In effect D/P means payable at sight (on demand).
The collecting bank hands over the shipping
documents including the document of title (bill of
lading) only when the importer has paid the bill.
The drawee is usually expected to pay within 3
working days of presentation.
The attached instructions to the shipping
documents would show "Release Documents
Against Payment"

Document against Advances (D/A)

The payment date is calculated from the term of
the bill, which is usually a multiple of 30 days
and start either from sight or form the date of
shipment, whichever is stated on the bill of
exchange.
The attached instruction would show "Release
Documents Against Acceptance"

 Advance against claims of duty drawback

DBK means refunds of custom duties paid on the
import of raw material component parts and
packing material used in the export product
It also includes refund of central excise duties paid
on indigenous materials
Banks offer pre shipment as well as post shipment
advances against claims for DBK

 Advance against goods set on consignment basis

The bank advance is subject to customer enjoying
specific credit limit fixed by the bank
The bank should ensure that while forwarding
shipping documents to its overseas branch/bank,
it should instruct the bank to deliver the
documents to the consignee against trust receipt
to deliver the sale proceeds within a prescribed
time limit

 Advance against undrawn balance of bills

There are cases where bills are not drawn to the
full invoice value of goods.
Certain amount of undrawn balance which is due
for payment after adjustments due to difference in
rates, weight, quality etc to be ascertained after
approval and inspection of the goods
Banks offer advance against such undrawn
balances subject to a maximum of 50% of the
value of export and an undertaking is obtained to
surrender balance proceeds to the bank

 Advance against deemed exports

Specified sales or supplies in India are considered
as exports and termed as deemed exports
It includes sales to foreign tourist during their stay
in India
Credit is offered for a maximum of 30 days

 Advance against deferred payments

In case of project exports, the exporter receives
the amount from the importer in installments
spread over a period of time.
The commercial bank together with EXIM bank
do offer advance at concessional rate of interest
for 180 days

 Advance against retention money

In respect of certain export capital goods and
project exports, the importer retains a part of cost
of goods/services towards guarantee of
performance or completion of project.
Banks advance against retention money, which is
payable within 1 year from the date of shipment

Schemes of Post shipment finance

POST -SHIPMENT EXPORT CREDIT GUARANTEE
Post-shipment finance given to exporters by banks
through purchase, negotiations or discount of export bills
or advances against such bills qualifies for the Guarantee.
It is necessary however, that the exporter concerned
should hold suitable policy of ECGC to cover the overseas
Credit risks.
The Premium rate for this Guarantee is 7 paise per Rs.
100/-per month
The percentage of loss covered under the individual postshipment Guarantee is 75%

EXPORT FINANCE GUARANTEE

This guarantee covers post-shipment advance
granted by banks to exporters against export
incentives receivable in the form of duty drawback,
etc.
The Premium rate for this Guarantee is 7paise per
Rs. 100 per month and the cover is 75 percent.
Banks having WTPSG are eligible for concessional
rate of premium and higher percentage of cover.

Resources
http://
www.exportscale.com/export_finance.html
http://www.eximguru.com/exim/Guides/Export
-Finance/Ch_6_Post_Shipment_Finance.aspx

Thank u