Post-shipment Credit / Finance

Post-shipment credit, also known as post-shipment finance, refers to the credit facilities extended by banks to exporters after goods have been shipped but before the export proceeds are realised. In banking, finance, and particularly within the Indian economy, post-shipment credit plays a crucial role in supporting export trade by ensuring liquidity, reducing cash flow gaps, and enhancing the competitiveness of Indian exporters in global markets.
Export transactions typically involve a time lag between shipment of goods and receipt of payment. Post-shipment finance bridges this gap and enables exporters to sustain operations without liquidity stress.

Concept and Meaning of Post-shipment Credit

Post-shipment credit is the finance provided to exporters against export bills, invoices, or shipping documents after the goods have been dispatched to the overseas buyer. It is essentially working capital finance that allows exporters to convert export receivables into immediate funds.
The credit is liquidated once the exporter receives payment from the foreign buyer. Until then, the bank assumes the credit risk, subject to the terms of the export contract and the underlying documents.

Objectives of Post-shipment Finance

The main objectives of post-shipment credit are to:

• Provide liquidity to exporters during the realisation period
• Facilitate smooth export operations and production cycles
• Enhance competitiveness of Indian exports through timely finance
• Reduce financial strain caused by delayed foreign payments

By ensuring timely availability of funds, post-shipment credit supports export growth and foreign exchange earnings.

Forms of Post-shipment Credit

Post-shipment finance can be provided in several forms depending on the nature of the export transaction:

• Negotiation of export bills, where the bank purchases or discounts export bills drawn under a letter of credit
• Purchase of export bills, where banks buy bills not backed by letters of credit
• Discounting of export bills, providing funds before the maturity of usance bills
• Advances against export bills sent on collection, where finance is provided pending realisation

Each form differs in risk profile, documentation, and pricing.

Post-shipment Credit under Letter of Credit and Non-LC Exports

In letter of credit-backed exports, banks provide post-shipment finance by negotiating or discounting documents strictly in accordance with LC terms. The credit risk is relatively lower due to the commitment of the issuing bank.
In non-LC exports, banks assess the exporter’s creditworthiness, buyer reliability, and country risk before extending finance. These transactions involve relatively higher risk and closer monitoring.

Role of Banks in Post-shipment Finance

Banks play a central role in providing post-shipment credit by assessing export documents, ensuring compliance with foreign exchange regulations, and managing credit risk. They also provide advisory services to exporters regarding documentation, payment terms, and risk mitigation.
Post-shipment finance is an important component of banks’ trade finance portfolios and contributes to fee-based and interest income.

Regulatory Framework in India

In India, post-shipment credit is regulated and guided by the Reserve Bank of India, which issues guidelines on export credit, interest rates, eligible periods, and reporting requirements.
Export credit is treated as priority sector lending, reflecting its importance in promoting exports and earning foreign exchange. RBI guidelines aim to ensure that exporters receive timely and reasonably priced credit while maintaining financial discipline.

Interest Rates and Tenure

Post-shipment credit is generally extended at concessional interest rates compared to domestic working capital loans. The tenure depends on the export contract and the realisation period of export proceeds, usually ranging up to 180 days, with extensions permitted in justified cases.
The concessional nature of export credit enhances the global competitiveness of Indian exporters.

Importance for the Indian Economy

Post-shipment finance plays a vital role in supporting India’s export-led growth strategy. By easing liquidity constraints, it enables exporters, particularly small and medium enterprises, to expand operations and explore new markets.
Higher export performance contributes to foreign exchange earnings, improves the balance of payments position, and supports overall economic growth.

Risk Management in Post-shipment Credit

Banks face risks such as buyer default, country risk, exchange rate fluctuations, and documentation discrepancies. To manage these risks, banks may rely on export credit insurance, letters of credit, guarantees, and careful credit appraisal.
Effective risk management ensures sustainability of post-shipment finance while protecting banks’ asset quality.

Advantages of Post-shipment Credit

Post-shipment finance offers several advantages:

• Improved cash flow for exporters
• Reduced dependence on internal funds
• Enhanced ability to meet production and operational expenses
• Support for timely realisation of export proceeds