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: * 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 other financial cost of the business.
Types of Pre Shipment Finance
* Packing Credit
* Advance against Cheques/Draft etc. representing Advance Payments. Pre-shipment finance is extended in the following forms:
* Packing Credit in Indian Rupee
* Packing Credit in Foreign Currency (PCFC)
Requirement for Getting Packing Credit
This facility is provided to an exporter who satisfies the following criteria * A ten digit importer exporter code number allotted by DGFT. * Exporter should not be in the caution list of RBI.
* If the goods to be exported are not under OGL (Open General License), the exporter should have the required license /quota permit to export the goods. Packing credit facility can be provided to an exporter on production of the following evidences 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. License 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.
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 Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order. The only guideline principle is the concept of Need Based Finance. Banks determine the percentage of margin, depending on factors such as: * The nature of Order.
* The nature of the commodity.
* The capability of exporter to bring in the requisite contribution. Different Stages of Pre Shipment Finance
Appraisal and Sanction of Limits
1. Before making any an allowance for Credit facilities banks need to check the different aspects like product profile, political and economic details about country. Apart from these things, the bank also looks in to the status report of the prospective buyer, with whom the exporter proposes to do the business. To check all these information, banks can seek the help of institution like ECGC or International consulting agencies like Dun and Brad street etc.
The Bank extended the packing credit facilities after ensuring the following" 1. The exporter is a regular customer, a bona fide exporter and has a goods standing in the market. 2. Whether the exporter has the necessary license and quota permit (as mentioned earlier) or not. 3. Whether the country with which the exporter wants to deal is under the list of Restricted Cover Countries (RCC) or not. Disbursement of Packing Credit Advance
2. Once the proper...