Post-Shipment Finance in India: What Every Exporter Must Know
Post-Shipment Finance in India: What Every Exporter Must Know
Once your goods leave Indian shores, you should not have to wait months to get paid. Post-shipment finance bridges the gap between shipment and actual receipt of export proceeds. It is one of the most widely used working capital tools for Indian exporters, backed by RBI guidelines and available through banks like SBI, HDFC, ICICI, Axis, and Kotak.
Whether your buyer is taking 60 days or 180 days to pay, post-shipment finance lets you access funds immediately after shipment and keep your business moving without a cash crunch.
Overview of Post-Shipment Finance
Post-shipment finance is credit extended to an exporter after goods have been shipped. The exporter submits the shipping documents (bill of lading, invoice, airway bill) to the bank, and the bank advances funds against those documents. The loan is repaid when the overseas buyer remits payment.
Under RBI’s Master Circular on Export Credit, post-shipment credit is available in both rupees and foreign currency. The maximum period is typically 180 days from the date of shipment for goods and 365 days for deemed exports. Banks are free to set interest rates but are guided by RBI’s priority sector lending norms for export credit.
Types of Post-Shipment Finance
- Export Bills Negotiated (EBN): Bank pays you against LC-backed bills and collects from the buyer’s bank
- Export Bills Purchased (EBP): Bank buys your bills on a recourse basis (without an LC)
- Export Bills Discounted: Bank discounts usance bills at a cost, giving you immediate funds
- Advance Against Export Bills Sent on Collection: Partial advance while documents are in transit for collection
- ECNOS (Export Credit under National Open System): Government-backed insurance cover through ECGC
Interest Rates
| Type | Typical Rate |
|---|---|
| Rupee post-shipment credit (up to 180 days) | 7.5% to 10% per annum |
| Foreign currency post-shipment credit | SOFR + 150 to 250 bps (approx. 4.5% to 7%) |
| Overdue bills beyond 180 days | 14% to 18% per annum |
Eligibility
- Valid IEC code from DGFT
- Existing banking relationship with a trade finance-enabled bank
- Shipment must have already taken place (supported by AWB, bill of lading, or shipping bill)
- Buyer’s creditworthiness and country risk may be evaluated by the bank
- ECGC policy cover for higher limits or riskier markets
- Good credit record with the bank
Documents Required
- Shipping documents: bill of lading or airway bill, commercial invoice, packing list
- Export LC copy (if LC-backed bills)
- Customs acknowledged shipping bill
- GR/SDF form (Exchange Control Declaration)
- Bank-specific post-shipment credit application form
- ECGC policy copy (if applicable)
- Last 6 months of bank statements
Application Process
- Complete shipment: Ship the goods and collect all shipping documents from the freight forwarder or shipping line.
- Submit documents to the bank: Present the complete set of shipping documents to your bank’s trade finance desk within the bank’s stipulated time (usually within 21 days of shipment).
- Bank verification: The bank verifies document compliance with the LC terms or the purchase order. This takes 1 to 3 working days.
- Credit to account: Once documents are approved, the bank credits funds to your current account or creates a post-shipment loan account.
- Collection and repayment: The bank sends documents to the buyer’s bank for payment. When the buyer pays, the loan is liquidated automatically.
FAQ
What is the difference between pre-shipment and post-shipment finance?
Pre-shipment finance is given before goods are shipped, to help produce and pack the export order. Post-shipment finance is given after shipment, against the shipping documents, to cover the waiting period until the buyer pays.
Can post-shipment finance be availed without an LC?
Yes. Banks can advance funds against bills sent on collection, even without an LC. However, the advance percentage is usually lower (50% to 70% of the invoice value) compared to LC-backed bills, and the interest rate may be slightly higher.
What happens if the overseas buyer does not pay?
If the buyer defaults, the loan becomes the exporter’s liability. This is why ECGC cover is important. Under ECGC policies, a portion of the loss is covered by the government-backed insurer, reducing the bank’s and exporter’s risk significantly.
How soon can I get funds after submitting shipping documents?
For LC-backed bills with compliant documents, funds are typically credited within 1 to 2 working days. For non-LC bills or bills with discrepancies, it may take 3 to 7 days after the bank resolves any issues.
