The key aspects of Post-Shipment Finance in the world of Trade Finance

Dec 9, 2024 | Education, Insights

What is Post-Shipment Finance?

Post-shipment finance is a type of credit facility provided to exporters after the goods have been shipped to the buyer.

This financial product helps exporters bridge the gap between the shipment of goods and the receipt of payment from the overseas buyer, ensuring smooth cash flow and operational continuity.

What are the Key Features of Post-Shipment Finance?

  1. PURPOSE – To provide liquidity to exporters after the shipment of goods, covering the period until payment is received from the buyer.
  2. ELIGIBILITY – This is typically available to exporters with shipped goods and valid shipping documents, such as bills of lading or airway bills.
  3. LOAN AMOUNT – This is usually based on the invoice value of the shipped goods.
  4. TENURE – This is short-term, aligned with the credit period extended to the buyer, often ranging from a few weeks to a few months.
  5. REPAYMENT – The loan is repaid once the exporter receives payment from the overseas buyer.

What are the BENEFITS of Post-Shipment Finance?

  1. ENHANCED LIQUIDITY – This provides immediate funds to manage operational expenses and new orders without waiting for buyer payments.
  2. RISK MITIGATION – This reduces the risk of payment delays or defaults by offering immediate cash against shipped goods.
  3. COMPETITIVE ADVANTAGE – This enables exporters to offer competitive credit terms to buyers, enhancing their market position.

What is the PROCESS of Receivable Finance?

  1. APPLICATION – The exporter applies for post-shipment finance with a finance provider, providing necessary shipping documents and invoices.
  2. RISK ASSESSMENT – The exporter applies for post-shipment finance with a finance provider, providing necessary shipping documents and invoices.
  3. APPROVAL – After evaluating the risk assessment, the finance provider approves the loan based on the exporter and buyer’s creditworthiness, and the value of the shipped goods.
  4. DISBURSEMENT – Funds are disbursed to the exporter, who uses them to manage cash flow and operational needs.
  5. PAYMENT COLLECTION & REPAYMENT – The funder collects payment from the overseas buyer as per the agreed credit terms. This concludes the repayment of the loan to the finance provider.

Overall, Post-shipment Finance is a vital tool for exporters, ensuring they have the necessary funds to maintain operations and grow your business while waiting for payments from international buyers.