What Role Does Post-shipment Finance Play in Exports?

As an exporter, you know that having access to a suitable trade finance solution is essential to run your business. The whole process of managing finances becomes safer and easier when you have a letter of credit from the buyer. However, if you are a new business in the export realm or dealing with a new customer, you may have to look at post-shipment finance options.

What is post-shipment finance?

It is a working capital financing solution that exporters can use after shipping their goods to the buyer and waiting for payment. Exporters often have multiple orders to deliver, which could involve manufacturing, processing, or purchasing the goods and meet other expenses that are part of a business. In such instances, post-shipment finance can improve their cash flow as they wait for payment from international buyers. Indian exporters also have post-shipment financing options with competitive rates to encourage exports from India.

What are the different types of post-shipment finance?

Bill discounting

Bill discounting is an option where the exporter can take the export bills they raised to the bank to buy or discount and provide finance after checking the credibility and validity of the bill and credit funds to the exporter’s account after deducting the interest applicable for the period.

Advance against export bills

Another option that exporters can take advantage of is an advance against export bills that have been sent for collection. The bank will advance funds to the exporter based on the bills they have sent for collection.

Advance against duty drawback

When an exporter is eligible for duty drawback, they can get an advance against this amount from their bank or financier. Duty drawback refers to the customs duty refund on imported goods that are later exported.

Advance against export incentives

When an exporter is eligible for a duty drawback, they can receive an advance against this amount from their bank or financial institution.

Packing credit in foreign currency

Exporters who deal in foreign currency can avail of a packing credit facility in foreign currency at better interest rates than local currency loans. This allows exporters to access funds in advance and aligns with the repayment they will get against their exports.

What are the steps to avail of post-shipment finance?

The first step is to assess how much finance you require and evaluate whether you are prepared to bear the cost. Once you have completed this step, you can follow the steps below to obtain finance.

Get documentation ready

a. The export contract or order

b. Shipping bill and invoice

c. Airway bill or bill of lading

d. Buyer’s credit-related documents

e. Letter of credit

Select financial institution

a. Talk to your bank or financial institution which offers such finance options

b. Evaluate the terms, processing speed, and your relationship with them

Submit your finance application

a. Once you have the documents ready, submit your application to the bank

b. The bank will evaluate the application and approve the loan or ask for more documentation

Negotiate loan terms

a. Discuss with your bank the terms for the loan, negotiate the interest rates, evaluate the repayment terms

b. You can also ask the bank to consider financing a higher amount if your business demands it.

Get loan disbursement

a. Once all the above steps are completed, you will get the funds in your bank account

b. Plan the spending based on projections and ensure timely repayment for a long-term relationship with your bank

As a thriving exporter in today’s economy, it is crucial to plan your finances to ensure business continuity, ability to meet commitments, and maintain your reputation as a reliable supplier in the international market. The competition is intense, and when dealing with buyers abroad, you will have to ensure timely delivery of quality goods consistently.

To that end, you must manage your cash flow well, whether arranging post-shipment finance solutions or choosing the right inward remittance platform. At LeRemitt, we offer solutions that will help streamline the inward remittance process with an innovative and trustworthy platform. Contact us to learn more.