Pre Shipment credit is extended by a financial institution when the exporter wants the payment of the goods before shipment. The main objectives behind pre-shipment credit or pre-export finance are to enable the exporter to:
- Procure raw materials.
- Carry out the 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 costs of the business.
Types of Pre Shipment credit
- Packing Credit
- Advance against cheques/draft etc. representing Advance Payments.
This facility is provided to an exporter who satisfies the following criteria
- A ten digit importer-exporter code number allotted by DGFT.
- The 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 the production of the following evidence to the bank:
- 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 the prescribed time limit.
- Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer.
- License issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under the 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.
Advance against Cheque/Drafts received as advance payment
Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank may grant export credit at concessional rate to the exporters of goods track record, till the time of realization of the proceeds of the cheques or draft, etc. The Banks, however, must satisfy themselves that the proceeds are against an export order.