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What is post shipment finance?

Post shipment finance refers to the financial assistance provided to exporters. Learn more about its need and types in this blog.

In international trade, businesses strive to expand their reach across borders and tap into new markets. An important step in this process is logistics and shipping, and for this, planning finances becomes critical to running smooth business operations.

What is post shipment finance?

Post shipment finance refers to the credit or financial assistance provided to exporters after shipment of goods and until the receipt of payment from the importer. It addresses working capital needs of exporters during the period when goods are in transit and awaiting payment.

What’s the need for post shipment finance?

Post shipment finance addresses the financial challenges faced by exporters in international trade. The complexities and time gap between shipping goods and receiving payment from importers creates a need for this financial support. The duration of this waiting period varies based on trade agreement terms, shipping distance, and customs procedures, ranging from a few days to weeks or even months.

The primary objective of post shipment finance is to reduce the financial burden experienced by exporters during this period. It provides them with the necessary funds to meet immediate working capital requirements, including payments to suppliers, employees, and other operational expenses¹.

Types of post shipment finance

There are several types of post-shipment finance options available to exporters, each designed to address specific financial requirements and circumstances. These options include:

Export bills purchased/discounted (DP and DA bills):

Banks purchase or discount export bills drawn on the importer, allowing them to access immediate funds at a discounted rate. Payment is made upon presentation (DP bills) or at a future agreed date (DA bills) between the exporter and importer.

Export bills negotiated (Bill under L/C):

Financing is provided against bills of exchange drawn under a Letter of Credit (L/C or LoC). Banks negotiate these bills, providing immediate funds to exporters based on the creditworthiness of the issuing bank.

Advance against export bills sent on collection basis:

Exporters can obtain advances against export bills sent for collection through banks. Funds are provided based on the bill’s value and the importer’s creditworthiness. Payment is received once the bills are collected from the importer’s bank.

Advance against export on consignment basis:

In certain cases, exporters may send goods on a consignment basis, where ownership remains with the exporter until the overseas agent sells the goods. Financial institutions offer advances against these export consignments, providing working capital prior to the goods sale.

Where can you get post shipment credit from?

Post shipment credit, another term used for post shipment finance, can be obtained from various sources. Here are some of the common sources:

Banks:

Commercial banks and financial institutions are the primary providers of post shipment credit. They offer a range of financial products and services tailored to exporters’ needs, such as post shipment packing credit, export bill discounting, and other forms of financing.

Export Credit Agencies (ECAs):

ECAs are government-backed entities that support exporters by providing credit guarantees or insurance against non-payment for post-shipment credit. These agencies play a crucial role in mitigating the risk associated with international trade transactions.

Specialized post shipment finance providers:

There are specialized providers who exclusively focus on meeting the financing requirements of exporters. These providers offer customized solutions, competitive interest rates, and possess specialized expertise in international trade finance, catering specifically to the needs of exporters.

Online trade finance platforms:

The rise of digital platforms has brought forth online trade finance providers as an alternative source of post-shipment credit. These platforms connect exporters with a network of fund providers, including banks, alternative lenders, and investors, facilitating convenient access to a wide range of financing options.

Eligibility for post shipment finance

The eligibility criteria for post-shipment finance may vary depending on each financial institution or provider. However, here are a few common factors²:

Exporter’s track record:

Financial institutions usually assess the exporter’s track record and past performance in international trade. They consider factors such as the exporter's experience, reputation, and successful completion of previous export transactions.

Creditworthiness:

Financial institutions evaluate the exporter’s financial stability, credit history, and capacity to repay the credit. This assessment may involve analyzing financial statements, credit reports, and conducting due diligence.

Trade documentation:

Exporters are required to provide proper documentation that includes invoices, export contracts, shipping documents, and insurance policies. Adequate and accurate documentation is essential to validate the export transaction and assess its eligibility for post-shipment finance.

Compliance with legal and regulatory requirements:

Exporters must adhere to relevant legal and regulatory requirements governing international trade. This includes compliance with export controls, customs regulations, and international trade laws.

Relationship with the financial institution:

Existing relationships with banks or financial institutions can have an impact on eligibility. A strong relationship, previous successful collaborations, and a good banking history may enhance the exporter’s chances of qualifying for post-shipment finance.

What documents are required for post shipment credit?

When applying for post shipment credit, exporters are typically required to provide some of the following documents³:

Invoice:

An export invoice provides details of the goods sold, including description, quantity, unit price, and total value of the shipment.

Shipping documents:

These include the bill of lading or air waybill, which confirms the shipment of goods and contains details such as the origin, destination, and consignee. The packing list, which itemizes the contents of the shipment, may also be required.

Export contract:

The export contract outlines the terms and conditions of the sale, including delivery terms, payment terms, and any special agreements between the exporter and importer.

Insurance documents:

If the exporter has obtained export credit insurance, documents such as the insurance policy or certificate may be required to demonstrate protection against non-payment or other trade risks.

Export license or permits:

In cases where specific export licenses or permits are required for certain goods or destinations, these documents may need to be provided to ensure compliance with regulatory requirements.

Check out Exports Compliance Dashboard to meet your license requirements

Amount of post shipment finance

Here are some key considerations regarding post shipment finance amount:

Working capital requirements:

Finance is based on immediate financial obligations like supplier payments and operational expenses.

Percentage of invoice value:

The specific percentage varies depending on the institution and credit terms.

Creditworthiness and risk assessment:

The amount offered considers the exporter's financial stability, track record, credit history, and transaction risk profile.

Credit limits:

These limits determine the maximum finance amount that can be extended to an exporter.

Post shipment finance is a beneficial method for exporters to navigate financial challenges of international trade. It enables them to manage cash flow effectively, mitigate risks, and fuel business growth. By familiarizing themselves with available options, meeting eligibility criteria, and providing the required documentation, exporters can harness post-shipment finance to thrive in global marketplaces. With e-commerce exports, the capital investment required to export has decreased. Indian exporters can sell internationally without having to set up warehouses or stores abroad with e-commerce exports.

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Frequently Asked Questions

What is the maximum period of post shipment finance?

The maximum period of post shipment finance can vary depending on the financial institution and specific terms of the credit agreement. Typically, it ranges from a few days to several months, depending on factors, such as, nature of the transaction and creditworthiness of the exporter.

Is post shipment finance only for long term?

Post shipment finance is provided for both short-term and long-term trade transactions.

Does intermodal provide shipment visibility?

Yes, intermodal provides shipment visibility through tracking systems, allowing real-time monitoring of cargo location and status.

Who can get post shipment credit?

Post shipment credit is available to individuals, businesses, and organizations involved in exporting goods or providing export services.

Published on June 22, 2023.

Sources:
1. https://www.eximguru.com/exim/guides/export-finance/ch_6_post_shipment_finance.aspx
2. https://www.cogoport.com/en-IN/blogs/post-shipment-credit-what-exporters-need-to-know-about-trade-finance-tool
3. https://connect2india.com/finance/trade-finance/types-of-post-shipment-finance.html
4. https://www.dripcapital.com/en-in/resources/finance-guides/post-shipment-finance-types

A complete guide on payment methods in international trade

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What is post shipment finance?

What is post shipment finance?

What’s the need for post shipment finance?

Types of post shipment finance

Export bills purchased/discounted (DP and DA bills):

Export bills negotiated (Bill under L/C):

Advance against export bills sent on collection basis:

Advance against export on consignment basis:

Where can you get post shipment credit from?

Banks:

Export Credit Agencies (ECAs):

Specialized post shipment finance providers:

Online trade finance platforms:

Eligibility for post shipment finance

Exporter’s track record:

Creditworthiness:

Trade documentation:

Compliance with legal and regulatory requirements:

Relationship with the financial institution:

What documents are required for post shipment credit?

Invoice:

Shipping documents:

Export contract:

Insurance documents:

Export license or permits:

Amount of post shipment finance

Working capital requirements:

Percentage of invoice value:

Creditworthiness and risk assessment:

Credit limits:

Amazon Global Selling: Your passport to easy exports and shipping from India

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