Foreign Trade

Types of Post Shipment Finance Available to Indian Exporters

8/31/2023

Blog Post

There is a wide array of post-shipment finance solutions available to Indian exporters, from government schemes to various financing options. Here are valuable insights into how these financial tools can significantly impact your global trade endeavors.

Key Takeaway

  • Indian exporters have access to various post-shipment finance options, including export bill rediscounting, export packing credit, export post-shipment credit, foreign bill purchase, and export factoring.
  • These financing methods are instrumental in improving cash flow for exporters, helping them meet operational expenses, secure raw materials, and manage longer payment cycles effectively.
  • The Indian government has introduced schemes and initiatives to make post shipment finance more accessible and favorable for exporters, encouraging their participation in international trade.
  • Exporters should carefully assess interest rates, eligibility criteria, and the reputation of financial institutions when choosing the right post shipment finance option.
  • Leveraging these financial tools enables Indian exporters to compete effectively in the international market, seize new opportunities, and ensure the timely delivery of goods to overseas clients.

In the dynamic world of international trade, Indian exporters often face a common challenge – ensuring a steady cash flow while dealing with overseas clients. This is where post shipment finance comes into play as a crucial financial tool. It provides a lifeline to Indian exporters by bridging the gap between shipping goods and receiving payments. In this article, we will explore the various types of post shipment finance available to Indian exporters, offering insights into their benefits and suitability.

Types of Post Shipment Finance

Learn about the different ways Indian exporters can get financial help after they've shipped their products. Find out how these options make global trade easier for them.

1. Export Bill Rediscounting

Export bill rediscounting is a financial practice where exporters receive immediate liquidity by selling their export bills to banks or financial institutions at a discount. These institutions, in turn, collect the full amount from the overseas buyer upon maturity. It's a valuable option for Indian exporters looking to improve cash flow.

Export packing credit is a short-term loan facility provided to exporters to finance the packing, transportation, and other pre-shipment expenses. It ensures that exporters have sufficient funds to prepare and deliver their products. This type of finance is instrumental in reducing the financial burden on exporters.

2. Export Post Shipment Credit

Post shipment credit serves as a working capital loan granted to exporters after they have shipped their goods. It allows exporters to meet various operational expenses until they receive payment from their overseas clients. This type of finance is particularly beneficial for exporters dealing with a longer payment cycle.

3. Foreign Bill Purchase

Foreign bill purchase is a financing option that enables Indian exporters to obtain immediate payment for their exported goods. It involves selling the export bills to banks or financial institutions at a negotiated rate. This financing method minimizes the risks associated with delayed payments.

4. Export Factoring

Export factoring is a financial arrangement where a specialized financial institution, known as a factor, purchases the accounts receivable or invoices of exporters. This provides immediate cash flow to the exporter while the factor assumes the responsibility of collecting payments from overseas buyers. Export factoring streamlines cash flow management.

Government Schemes and Initiatives for Indian Exporters

The Indian government places significant emphasis on promoting exports and supporting Indian businesses in the international market. Numerous efforts and programmes have been launched specifically to help Indian exporters in order to enable this. In order to increase the competitiveness of Indian exporters on an international level, these opportunities provide a variety of advantages, financial incentives, and logistical support. The following are some of the most important government initiatives and programmes accessible to Indian exporters:

Export Credit Guarantee Corporation (ECGC) Cover

ECGC is a government-backed organization that provides export credit insurance to Indian exporters. It protects exporters against non-payment by overseas buyers due to various reasons such as political risks, economic risks, or commercial risks. ECGC cover boosts the confidence of exporters in exploring new markets and extending credit to international clients.

Merchandise Exports from India Scheme (MEIS)

MEIS is an export promotion scheme that incentivizes exports of specified goods to specific markets. Under this scheme, exporters receive duty credit scrips, which can be used to offset various duties and taxes, making Indian products more competitive in international markets.

Export Promotion Capital Goods (EPCG) Scheme

The EPCG scheme allows exporters to import capital goods, machinery, and equipment at concessional rates of customs duty. This helps Indian manufacturers upgrade their technology and infrastructure, enhancing their export capabilities.

Market Access Initiative (MAI)

The MAI scheme aims to support market exploration and development activities by Indian exporters. It provides financial assistance for participating in international trade fairs, exhibitions, buyer-seller meets, and other promotional events. This initiative helps Indian exporters establish a global presence.

National Export Insurance Account (NEIA)

NEIA is a credit insurance scheme offered by the Export Credit Guarantee Corporation of India (ECGC). It covers the credit risks associated with export transactions, ensuring that exporters receive their payments even in case of buyer default. This scheme boosts export financing and reduces the risk of non-payment for Indian exporters.

Export Promotion Councils (EPCs)

EPCs are autonomous organizations supported by the government. They represent specific sectors or industries and play a crucial role in promoting exports. EPCs offer various services to exporters, including market research, trade facilitation, and networking opportunities.

Transport and Freight Subsidies

The government provides subsidies on transportation and freight costs for certain products and markets. This reduces the overall cost of exporting goods, making Indian products more competitive in international markets.

Foreign Trade Policy (FTP)

The FTP is periodically reviewed and updated by the government to provide a comprehensive framework for promoting exports. It outlines various trade facilitation measures, export promotion strategies, and incentives for Indian exporters.

Export Oriented Units (EOUs) and Special Economic Zones (SEZs)

Indian exporters can set up EOUs and operate within SEZs to benefit from tax incentives, simplified regulatory procedures, and a conducive business environment. These zones offer a favorable ecosystem for export-oriented businesses.

Duty Drawback Scheme

The Duty Drawback Scheme allows exporters to claim a refund of customs duties paid on imported raw materials and inputs used in the manufacture of exported goods. This scheme reduces the cost of production for exporters.

These government schemes and initiatives collectively aim to bolster the export sector in India by providing financial support, reducing risks, and promoting international trade. Indian exporters are encouraged to leverage these programs to expand their global footprint, enhance competitiveness, and capitalize on emerging opportunities in international markets.

Conclusion

In the realm of international trade, Indian exporters need reliable financial solutions to thrive. Various types of post shipment finance serve as lifelines, ensuring steady cash flow and enabling Indian businesses to compete on the global stage. By exploring these options and understanding their nuances, Indian exporters can harness the power of post shipment finance to grow their businesses and expand their international reach.

#Financial Support for Exporters#Government Export Schemes#Export Post Shipment Credit#Indian Exporters#export finance

Anurag Jain

Anurag Jain, is the co-founder and Executive Director of KredX. An IIT Kanpur alumnus and a techie-turned-entrepreneur with two decades of experience in the financial services sector, he drove business growth in companies like HSBC, Oracle, and Tavant Technologies, before co-founding KredX, in 2015. You can connect with him on LinkedIn to know more.