Post Shipment Finance

Post Shipment Finance : Post-shipment finance is the finance provided against shipping documents. It is also provided against duty drawback claims. It is provided in the following forms.

Purchase of Export Documents drawn under Export Order

Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customers who are enjoying Bill Purchase / discounting limits from the Bank. As in case of purchase or discounting of export documents drawn under export order, the security offered under L / C by way of substitution of credit-worthiness of the buyer by the issuing bank is not available, the bank financing is totally dependent upon the credit worthiness of the buyer, i.e. the importer, as well as that of the exporter or the beneficiary. The documents drawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favour of the exporter / banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, drawee-wise limits are generally fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this drawee limit is not exceeded so as to make the bank ineligible for claim in case of non-payment.

Advances against Export Bills Sent on Collection

It may sometimes be possible to avail advance against export bills sent on collection. In such cases the export bills are sent by the bank on collection basis as against their purchase / discounting by the bank. Advance against such bills is granted by way of a separate loan usually termed as post-shipment loan. This facility is, in fact, another form of post-shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of Negotiation / Purchase / Discount of export bills. A margin of 10 to 25% is, however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also governed by the same rules. This type of facility is, however, not very popular and most of the advances against export bills are made by the bank by way of negotiation / purchase / discount.

Advance against Goods Sent on Consignment Basis

When the goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds to him by the agent / consignee, bank may finance against such transaction subject to the customer enjoying specific limit to that effect. However, the bank should ensure while forwarding shipping documents to its overseas branch / correspondent to instruct the latter to deliver the documents only against Trust Receipt / Undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.

Advance against Undrawn Balance

In certain lines of export it is the trade practice that bills are not to be drawn for the full invoice value of the goods but to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. to be ascertained after approval and inspection of the goods. Banks do finance against the undrawn balance if undrawn balance is in conformity with the normal level of balance left undrawn in -the particular line of export subject to a maximum of 10% of the value of export and an undertaking is obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment. Against the specific prior approval from Bank the percentage of undrawn balance can be enhanced by the exporter and the finance can be made available accordingly at higher rate. Since the actual amount to be realised out of the undrawn balance, may be less than the undrawn balance, it is necessary to keep a margin on such advance.

Advance against Retention Money

Banks also grant advances against retention money, which is payable within one year from the date of shipment, at a concessional rate of interest upto 90 days. If such advances extend beyond one year, they are treated as deferred payment advances which are also eligible for concessional rate of interest.

Advances against Claims of Duty Drawback

Duty drawback is permitted against exports of different categories of goods under the Customs and Central Excise Duty Drawback Rules. Drawback in relation to goods manufactured and exported means a rebate of duties chargeable on any imported materials or excisable materials used in the manufacture of such goods or rebate on excise duty chargeable under Excises Rules certain specified goods. The Duty Drawback Scheme is administered by Directorate of Duty Drawback in the Ministry of Finance. The claims of duty drawback are settled by Custom House at the rates determined and notified by the Directorate.

As per the present procedure…. no separate claim of duty drawback is to be filed by the exporter. A copy of the shipping bill presented by the exporter at the time of making shipment of goods serves the purpose of claim of duty drawback as well. This claim s provisionally accepted by the customs at the time of shipment and the shipping bill is duly verified. The claim is settled by customs office later.

As a further incentive to exporters, various Customs Houses have evolved a simplified procedure under which claims of duty drawback are settled immediately after shipment and no funds of exporter are blocked. However where settlement is not possible under the simplified procedure exporters may obtain advances against claims of duty drawback as provisionally certified by customs.

Negotiation of Export Documents Drawn under L / C

By submitting L / C, the exporter can claim money from the banks.

Rates of Interest

The rate of interest depends on the nature of the Bills. i.e. whether it is a demand bill or usance bill. Like preshipment, post-shipment finance is also available at concessional rate of interest. Under the new Monetary Credit Policy, interest rates on post shipment credit have been revised.

Normal Transit Period

Foreign Exchange Dealers Association has fixed transit period for export bills drawn on different countries in the world. The concept of this transit period is that an export bill should normally be realised within that period. The transit period so fixed by FEDAI is known Normal Transit Period and mainly depends on geographical location of a particular country.

Direct and Indirect Bill

If the currency of the bill is the same as the currency of the country on whieh it is drawn. it is termed as direct bill, e.g. an export bill in US $ drawn on a place in USA. However, if the currency of the bill in which it is drawn is different than the currency of the country on which it is drawn, it is termed as indirect bill. e.g. an export bill in US $ drawn on a place in Japan. The normal transit period fixed for indirect bill is on higher side as compared to transit period fixed for direct bills.

National Due Date :

To determine the due date of an export bill we have to consider the following three components.

(i) Normal transit period as fixed by FEDAI

(ii) Usance period of the bill

(iii) Grace period if applicable in the country on which the Bill is drawn. (Grace period is applicable only in case of usance bills.)

The national due date of an export bill may thus be calculated after adding all the above three components.

The concessional rate of interest is chargeable upto the national due date subject to a maximum of 90 days.

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