Pre-Shipment Finance Overview
40 Questions
0 Views

Pre-Shipment Finance Overview

Created by
@ProfoundBlackHole

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary purpose of pre-shipment finance?

  • To cover expenses incurred during the pre-shipment phase (correct)
  • To provide long-term financing for business expansion
  • To facilitate international payments after shipment
  • To secure raw materials at lower prices

    • Which of the following is NOT typically covered by pre-shipment finance?

  • Manufacturing costs
  • Wages and salary for employees
  • Post-shipment expenses (correct)
  • Cost of packaging

    • Which document is essential for a seller to obtain pre-shipment finance?

  • Shipping manifest
  • Sales invoice
  • Letter of Credit or purchase order (correct)
  • Bill of lading

    • What can sellers use the funds acquired through pre-shipment finance for?

    <p>Procurement of raw materials</p> Signup and view all the answers

    What is a common term for pre-shipment finance used in India?

    <p>Purchase order finance</p> Signup and view all the answers

    When does the financier debit the seller's account in the pre-shipment finance process?

    <p>On the maturity or payment date</p> Signup and view all the answers

    What typically happens prior to approving a pre-shipment finance request?

    <p>An assessment of the creditworthiness of both parties</p> Signup and view all the answers

    What must a seller do to use pre-shipment finance effectively?

    <p>Have a credible purchase order from a buyer</p> Signup and view all the answers

    What is the purpose of pre-shipment finance?

    <p>To provide immediate funds for working capital before shipment.</p> Signup and view all the answers

    Which document is required for obtaining pre-shipment finance?

    <p>Export Order or Letter of Credit</p> Signup and view all the answers

    What is the primary purpose of Extended Packing Loans?

    <p>To help businesses obtain funds for raw materials quickly</p> Signup and view all the answers

    How quickly can businesses raise funds through invoice discounting services from KredX?

    <p>Within 24-72 hours</p> Signup and view all the answers

    Which type of pre-shipment finance requires the issuance of a letter of credit to suppliers?

    <p>Advances Against Back-To-Back Letter of Credit</p> Signup and view all the answers

    Post-shipment finance is primarily obtained for what purpose?

    <p>To cover expenses after the shipment of goods.</p> Signup and view all the answers

    What differentiates a Red Clause Letter of Credit from a Green Clause Letter of Credit?

    <p>Green Clause finances storage while Red Clause funds purchase of goods</p> Signup and view all the answers

    Which of the following best describes the difference in timing between pre-shipment and post-shipment finance?

    <p>Pre-shipment finance is obtained before goods are shipped, post-shipment after.</p> Signup and view all the answers

    Secured Shipping Loans are sanctioned based on which of the following?

    <p>Transportation receipts</p> Signup and view all the answers

    What type of finance allows businesses to maintain cash flow between shipment and payment?

    <p>Post-shipment Invoice Financing</p> Signup and view all the answers

    What must businesses provide to obtain Packing Credit For Imports?

    <p>A letter of credit issued within 60 days</p> Signup and view all the answers

    What is one common characteristic of pre-shipment finance options?

    <p>They do not require collateral.</p> Signup and view all the answers

    In the context of post-shipment finance, what is meant by 'Export Bills Negotiated under L/C'?

    <p>It enables exporters to obtain financing by submitting required documents to the bank.</p> Signup and view all the answers

    Which of the following best describes Advances Against Export Incentives?

    <p>They are granted against the value of materials exceeding free onboarding limits</p> Signup and view all the answers

    What is a requirement for issuing a Red Clause Letter of Credit in India?

    <p>Government permission</p> Signup and view all the answers

    In what scenarios would Advances Against Back-To-Back Letter Of Credit not be applicable?

    <p>When the original credit is not established</p> Signup and view all the answers

    What condition must be met for post-shipment finance to be increased through the purchase or discount of export bills?

    <p>The exporter has all details of the export contract.</p> Signup and view all the answers

    When is post-shipment finance available against goods sent on a consignment basis?

    <p>After the goods have been sold.</p> Signup and view all the answers

    What is the purpose of the advance against duty drawback for exporters?

    <p>To provide incentives for exporters post-shipment.</p> Signup and view all the answers

    What does retention money refer to in the context of export contracts?

    <p>The amount unpaid after completion of the project.</p> Signup and view all the answers

    Under what circumstance might post-shipment finance be offered for undrawn balances?

    <p>When adjustments are necessary due to discrepancies.</p> Signup and view all the answers

    Which financing option is available only when export bills under L/C create issues?

    <p>Advance against bills sent for collection.</p> Signup and view all the answers

    What does the bank require from the exporter when offering advances against export bills for collection?

    <p>All relevant details of the export contract.</p> Signup and view all the answers

    How long is post-shipment finance against retention money typically offered for?

    <p>90 days.</p> Signup and view all the answers

    Which types of exporters are eligible for post-shipment finance?

    <p>Merchant and manufacturer exporters</p> Signup and view all the answers

    What document is necessary to prove that goods are shipped for export purposes?

    <p>Shipping document</p> Signup and view all the answers

    What is one of the primary purposes of post-shipment finance?

    <p>To fill the gap between shipment and sales proceeds</p> Signup and view all the answers

    What percentage of the GST value can post-shipment finance cover?

    <p>100%</p> Signup and view all the answers

    Which organization can exporters refinance their loans from if using post-shipment finance?

    <p>EXIM Bank</p> Signup and view all the answers

    What is the maximum loan amount that commercial banks can provide to exporters under post-shipment finance?

    <p>Rs. 10 crore</p> Signup and view all the answers

    In addition to filling financial gaps, what else can post-shipment finance help exporters cover?

    <p>ECGC premium for risk coverage</p> Signup and view all the answers

    Which of the following is NOT a purpose of post-shipment finance?

    <p>Acquiring personal loans</p> Signup and view all the answers

    Study Notes

    Pre-Shipment Finance

    • Definition: Pre-shipment finance is a credit facility that helps businesses cover expenses incurred before exporting goods or services.
    • Purpose: It addresses working capital needs during the pre-shipment phase, such as:
      • Procuring raw materials
      • Covering manufacturing costs
      • Packaging expenses
      • Pre-shipment expenses
      • Wages and salaries
    • Eligibility: Typically accessible to exporters or suppliers of export goods.
    • Documentation: Common documentation includes:
      • Purchase orders
      • Bank guarantees issued to the seller
      • Documentary or standby letters of credit
    • Types of Pre-Shipment Finance:
      • Extended Packing Loan: An advance provided to acquire raw materials, later converted to a collateralized loan.
      • Advances Against Back-to-Back Letter Of Credit: The exporter's bank issues a letter of credit to their suppliers, enabling them to purchase materials.
      • Red Or Green Clause Letter Of Credit:
        • Red Clause: Allows for cash advances to the beneficiary for purchasing goods and initiating export, offering partial or full payment depending on terms and documents.
        • Green Clause: Provides credit for storing goods at the port, allowing the beneficiary to access funds and utilize storage facilities.
      • Secured Shipping Loans: Funds available after goods are converted into finished items and shipped, often secured with rail or lorry receipts.
      • Advances Against Export Incentives: Cash advances are provided against export incentives like duty drawbacks after shipment.
      • Packing Credit For Imports Against Entitlements Under Advance Licence: A facility available to manufacturers of export goods, where pre-shipment finance is provided based on a letter of credit and the use of imported materials for export production.

    Post-Shipment Finance

    • Definition: Post-shipment finance provides working capital support after goods are shipped, bridging the gap between shipment and payment.
    • Types of Post-Shipment Finance:
      • Export Bills Negotiated under L/C: The exporter's bank negotiates the export bills and provides post-shipment finance upon submission of required documents.
      • Purchase/Discount of Export Bills: Post-shipment finance can be offered through purchasing or discounting export bills outside letter of credit scenarios.
      • Advance against Bills sent for Collection: Post-shipment finance is provided when the export bills are not covered under a letter of credit, or if specific circumstances require it.
      • Advance against Goods sent on Consignment Basis: Post-shipment finance is issued after goods are sold on consignment, with the exporters' bank in the importing country delivering documents against a trust receipt.
      • Advance against Duty Drawback: Exporters receive incentives like duty drawback (DBK) from the government after shipment, with banks providing pre and post-shipment finance options.
      • Advance against Undrawn Balances: Post-shipment finance is provided for undrawn balances that arise from unutilized credit limits or adjustments for differences in rates, weight, or quality.
      • Advance against Retention Money: In capital goods export contracts, banks offer post-shipment finance against retention money (unpaid amounts held back by the importer until project completion).
      • Advance against Deferred Payments: In capital goods or construction contracts, banks provide post-shipment finance for deferred payments received in installments.
    • Features of Post-Shipment Finance:
      • Eligibility: Available to various exporters, including merchant exporters, manufacturer exporters, export houses, trading houses, and manufacturers supplying goods to export houses, trading houses, or merchant exporters.
      • Documentary Evidence: Exporters must provide shipping documents, necessary documents confirming the credit facility, and a letter from the export house certifying export-bound goods.
      • Purpose: Post-shipment finance is used to:
        • Fill the gap between shipment and payment
        • Cover insurance charges
        • Pay ECGC premium
        • Pay commissions and brokerage
        • Fund export promotion activities
      • Amount of Finance: Post-shipment finance can reach up to 100% of the GST value of exported goods. Loans up to Rs. 10 crore are provided by commercial banks and can be refinanced by EXIM Bank. Loans above Rs. 10 crore and up to Rs. 50 crore are also offered by EXIM Bank.

    Key Differences Between Pre-Shipment and Post-Shipment Finance:

    Parameter Pre-Shipment Finance Post-Shipment Finance
    Purpose Supports working capital before shipment Supports working capital after shipment
    Time of Credit Before goods are shipped After goods are shipped
    Required Documents Letter of credit or export order Export shipping documents

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Pre-Shipment Finance PDF

    Description

    This quiz covers the essential aspects of pre-shipment finance, including its definition, purpose, and eligibility criteria. Learn about the types of financing available and the necessary documentation involved in the pre-shipment phase of exportation.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser