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2024-11-21 07:22

» Export Finance

Exporter needs finance for purchasing, processing, manufacturing or packing of goods for export. After the goods have been shipped there is time gap between the time of shipment and receipt of export proceeds from the buyer. Export finance is the cheapest, easiest and the most liberal finance available in industry.
It is generally found that they exporter are in need of finance at 2 stages namely at pre shipment stage (before the goods are shipped) and at the post shipment stage(when the goods have been shipped).

Pre shipment Finance

Pre shipment finance is related to export after procuring the order, to purchase the row material, processing pre shipment inspection, packing, insurance, transport charges, export duty, dock charges and custom house charges.

 

Packing Credit

Extended by the banker for the procurement of raw material, processing, pre shipment finance and packing.

 

Shipping Loan

To meet the insure, transport, export license fees, export duty, dock charges and custom house charges.

 

Person eligible for packing credit

Packing credit can be grated to an exporter, who has export order in his own name and who will actually export the goods. However, as an exception to this rule, packing credit can be granted to supporting manufacturers or suppliers of goods, who do not have export ordering his name and are exporting through merchant exporter or export house.

 

Basic criteria for granting packing credit

Since export finance is a purpose oriented, it is granted to the eligible exporter or the manufacturers against evidence/lodgment of irrevocable L/C, established/transferred through the medium of a reputed bank or confirmed order/contacts placed by buyer.

 

Purpose of finance

Packing credit finance, being purpose-oriented finance, is granted for the specific purpose of procuring raw material, purchasing, manufacturing, processing, transporting, warehousing, packing and shipped the goods.

 

Quantum of finance

There is no fix formula for determines the quantum of finance, to be granted to exporter but banks normally finance 60% to 80% of the total value of export in many stage.

 

Period of finance

Maximum extendibility is only for 180 days or expiry date or processing period which ever is earlier.

 

Rate of interest

1 - 80 days -----> PLR - 2.5%
80 - 270 days -----> PLR - 0.5%
270 - 360 days -----> commercial rate of interest
beyond 360 days -----> premium rate of interest
PLR is Prime landing rate.


Post shipment finance

Post shipment finance is the finance extended by the bank after effective the shipment to bridge the financial gap. Post shipment finance is required because at the pre shipment stage exporter gets only 60% to 80%. So balance amount need to be released to him after shipment.
Post shipment finance can be classified as under

 

Negotiation (settlement) of document under L/C

The exporter tenders the documents to his bank and the bank pass the value to the exporter even before receiving it.
It is done with resource (right of recovery).

 

Purchase of document without L/C

In case there is no L/C. the bank purchase the document drawn under the order. Exporter's bank runs a bigger risk in this case. Bank while purchasing the documensinsist of ECGC policy + credit limit on buyer. So that bank cans fallback on ECGC in the case of need.

 

Advance against document sent on collection basis

Sometimes, it is possible that there is a shortfall in sanction bills, purchase or negotiation limit. To cover the entire amount of a bill tendered by the exporter for purchase or negotiation, or the document drawn under L/C have some discrepancies and the bank is reasonably sure that the same will be accepted to the buyer and that the bill will be paid. Under such situation, considering the immediate need and requirement of the exporter, the bank may send the bill on collection basis and finance him to some extent out of the total bill amount.

 

Advance against retention money

When the capital goods are being exported the buyer does not pay the full amount to the exporter but retain certain amount as retention money. It is lieu of performance guarantee according to India law only 10% is retention money only for 6 months.

 

Advance against undrawn balance

In certain line of export, it is the trade practice that bills are not to be drawn for the full invoice value of the goods but it leave small parts undrawn for payment after adjustment due to difference in rates, weight, quality. The undrawn amount is pay by the buyer after testing the goods at the discharge port. Bank finance the undrawn balance subject to a minimum of 10% of the value of export and an undertaking is obtained from the exporter that he will surrender the balance within 6 months or 12 months from the date of shipment.

 

Person eligible for post shipment finance

in case of physical export, post shipment finance is extended to the actual exporter who has exported the goods or to an exporter in those name export document are transferred.

 

Basis of post shipment finance

Post shipment finance is always extended against the evidence of shipment of export goods or supplies made to the designated agencies (in the case of deemed exports).

 

Purpose of post shipment finance

Post shipment finance, being basically on export sales finance, is meant for financial export sales receivables after the date of shipment of goods of the trade of realization of the export proceeds.

 

Quantum of post shipment finance

Post shipment finance can be extendedly to 100% of invoice value of goods.

 

Period of post shipment finance

Post shipment finance can be a both short term and long term finance depending upon the payment terms.

 

Rate of post shipment finance

Upto 90 days --------> PLR - 2.5%
91 - 180 days -------> PLR - 0.5%
181 days and more --------> depend on the bank.