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Pre Shipment Finance
Pre-shipment Finance: Pre-shipment is a loan/advance granted to the exporter for financing the purchase, processing, manufacturing, or packing of goods prior to shipment. Pre-shipment is also known as packing credit. The packing credit is granted on the basis of a letter of credit or a confirmed and irrevocable order for the export of goods/services from India or any other evidence of an order for export from India.
Although Pre-shipment Financing is most commonly provided in an open account situation, other sources of repayment from the buyer may also be the proceeds of a Documentary Credit or standby letter of credit or a Bank Payment Obligation. Pre-shipment Finance can be provided on a programmatic basis, covering a series of transactions (typically for smaller sellers) or on a transactional basis (typically for larger sellers).
The finance provider is likely to advance a certain percentage of the value of the order, potentially disbursed in stages as the order is fulfilled. Maturity dates for the financing are established between the seller and finance provider and are often tied to the ultimate date on which the buyer will make payment.
Upon shipment, the finance provider may offer post-shipment financing using techniques such as Receivables Discounting, or Payables Finance to cover the period from shipment and the raising of the invoice until the final payment by the buyer.
