Methods of export-import financing

Question 1

PRE-SHIPMENT FINANCE
● Packing credit
● Advances against incentives receivable from government
● Pre-shipment credit in foreign currency

Answer 1

1. Packing Credit
   - enable the exporter to procure, process, manufacture or store the goods for export.
2. Advances against Incentives Receivable from Government
3. Pre-Shipment Credit in Foreign Currency

Question 2

POST-SHIPMENT FINANCE
-loan or advance granted by the bank to the exporter after the date of shipment of goods till the date of realisation of export proceeds.

Answer 2

Types of post-shipment finance

1. Negotiation of Export Documents under Letters of Credit
2. Purchase/Discount of Foreign Bills
   - Bill may be drawn on D/A (Documents against Acceptance) or D/P (Documents against Payment) basis, dependant on the terms of export contract.
   - In case of D/A bills, document of title would be given to buyer, on acceptance of the usance bill
   - When it is D/P bill, the bank purchases it. The term ‘discount’ is used in case of D/A bill.
3. Advance against Export Bills Sent on Collection
4. Advance against exports sent on consignment basis
5. Advance against export incentives
6. Advance against undrawn balances
   - undrawn balance cannot be more than 5% of the total invoice value.
   - exporter has to surrender the balance amount within the prescribed period of 180 days from the date of shipment of goods.
7. Advance against Retention Money
   - buyer withholds some amount, payable within a year, advance payment 90days
8. Post-shipment credit in foreign currency
   - interest rate as per LIBOR
9. Buyer’s credit
   - buyer is extended credit by a financial institution or consortium of financial institution, payment received immediately
10. Line of credit
    - line of credit is extended to a financial institution in the buyer’s country by the financial institution from seller’s country.