Pre Shipment Finance is issued by a financial institution when the seller wants the payment of the goods before shipment. The main objectives behind pre-shipment finance or pre-export finance are to enable exporter to....................
The source from the supplier or to procure raw materials & carry out manufacturing process. Provide a secure warehouse for goods and raw materials.
Process and pack the goods.
Ship the goods to the buyers.
Meet another financial cost of the business.
Types of Pre Shipment Finance
Packing Credit
Advance against Post Dated Conformed Cheques/ LC Draft etc. representing Advance Payments.
Requirements for Getting Packing Credit
A ten digit importer-exporter code number allotted by DGFT. (IEC Code)
Exporter should not be in the caution list of RBI. If the goods to be exported are not under OGL (Open General Licence), the exporter should have the required license /quota permit to export the goods.
Packing credit facility can be provided to an exporter on the production of the following evidence to the bank:
1. Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit.
2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer.
3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted. The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIF), destination port and the last
date of payment.
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own name. However, as an exception, financial institution can also grant credit to a third party manufacturer or supplier of goods who does not have export orders in their own name. In this case some of the responsibilities of meeting the export requirements have been out sourced to them by the main exporter. In other cases where the export order is divided between two more than two exporters, pre-shipment credit can be shared between them
Before disbursing the bank specifically check for the following particulars in the submitted documents
a. Name of buyer
b. Commodity to be exported
c. Quantity
d. Value (either CIF or FOB)
e. Last date of shipment / negotiation.
f. Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the domestic values of goods, whichever is found to be lower. Normally insurance and freight charged are considered at a later stage, when the goods are ready to be shipped. In this case disbursals are made only in stages and if possible not in cash. The payments are made directly to the supplier by drafts/bankers/cheques. The bank decides the duration of packing credit depending upon the time required by the exporter for processing of goods. The maximum duration of packing credit period is 180 days, however bank may provide a further 90 days extension on its own discretion, without referring to RBI.