Difference Between Pre-Shipment and Post-Shipment Finance

The consumer transaction is a never-ending process in the world. People require essential and non-essential things for their living and survival every day.

Trading involves financial requirements at every stage. Especially, export finance is the most important financial factor that revolves around the entire business of selling and buying goods.

Pre-Shipment vs Post-Shipment Finance

The main difference between Pre-shipment and Post-shipment is that pre-shipment offers the assistance of finance to the exporter before the goods are shipped while post-shipment is the financial assistance offered once the goods are shipped. The post-shipment patches the financial risk factor during the ‘in-between’ period of shipping and proceeds realization.

Pre shipment vs Post shipment finance

 

Comparison Table Between Pre-Shipment and Post-Shipment Finance (in Tabular Form)

Parameter of ComparisonPre-Shipment FinancePost-Shipment Finance
Meaning/DefinitionIt is financial assistance offered to the seller/exporter before the goods are exported/shipped.It is financial assistance offered to the seller/exporter after the goods are exported/shipped.
UsagePre-Shipment finance helps the exporter to arrange goods for the shipment.
1. Buying Raw Materials
2. Manufacturing Finished Products
3. Packaging
Post-Shipment finance helps the exporter to pay his vendors. This practice helps the exporters not to wait for the payment to be received from the seller.
Percentage of Interest0.0750.0865
Documents RequiredExport Order or Letter of CreditExport Shipping Documents
Repayment NormsDepends on the Proceeds of Contract.Depends on the Proceeds of the Exports.

 

What is Pre-Shipment Finance?

Pre-Shipment finance is the financial support offered by the financial institutions to the exporter before the goods are shipped to the buyer.

Pre-shipment Finance helps the exporter to

  1. Purchase raw materials for the goods to be manufactured
  2. Salary/Wages to the labourers
  3. Manufacturing of the products
  4. Packing the Product

Once an order is confirmed from the buyer, it is required of the exporter to honour it. This results in manufacturing the goods as per the client’s requirement.

The documents required to avail Pre-shipment finance

  1. Export Order/Purchase Order or
  2. Letter of Credit

Once these documents are validated, the funds are disbursed to the exporter for further proceedings. Pre-shipment finance is available for the exporters under two categories:

  1. Credit on Packing
  2. Advance against any post-dated cheques or drafts produced by the buyer
pre shipment finance
 

What is Post-Shipment Finance?

Post-shipment Finance is offered by a bank or a financial institution to the exporter once the goods are exported to the buyer.

Post-Shipment finance helps the exporter to

  1. Pay the Labourers
  2. Pay the Vendors
  3. Pay any internal expenditure which was incurred while the goods were manufactured.

Ideally, Post-shipment finance is offered to the exporters to bridge the gap between the shipment of goods and the buyer’s payment period.

The lender requires clear proof to disburse the funds. The documents required to approve the post-shipment loan are

  1. Purchase order/ Export Order
  2. Letter of Credit
  3. Shipping Evidence

The financial assistance at this stage is of huge help to the sellers to meet all their financial demands which were incurred during and after the shipment.

post shipment finance

Main Differences Between Pre-Shipment and Post-Shipment Finance

  1. The main difference between Pre-shipment and Post-shipment finance is the stage when the financial support is offered to the exporters.
  2. Pre-shipment and Post-shipment finance are offered to the sellers to meet their financial demands during the trading process.

 

Conclusion

The export and import business involves risk. The element of risks is averted by the financial help offered by the banks to the exporters.

Trading internationally requires government support too. The countries involved in the trade have their banks backed by the respective governments. This factor holds good for most of the countries.


References

  1. https://www.ingentaconnect.com/content/hsp/jpss/2012/00000006/00000003/art00004
  2. https://ieeexplore.ieee.org/abstract/document/5551613/
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