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What is post-shipment finance and how could it help your exporting business?

What is post-shipment finance?

A special type of trade finance, post shipping financing offers exporters access to working capital by securing loans against outstanding customer invoices. This cash injection can ensure they maintain business operations and on-going expenses in the time before invoices from international clients are settled.

For exporters shipping goods and services around the globe, a big challenge can be the amount of time between when products are delivered vs when they actually receive the payments. This cash flow timing gap can create financial strain, especially when large shipments are involved or when operational costs need covering before the customer’s payments arrive. Post shipment finance is a financing solution that offers a way to help bridge this gap.

Read on to find out when and why it can be an option for your business and how it could benefit you today.

What is post-shipment finance?

Post-shipment finance is a well-known type of trade financing. Here, exporters have access to working capital even while waiting for international customer payments on exported products and or services.

Typically, the loan covers the period from when your goods are shipped until you receive full payment from your international customer, however the actual time frames can differ between lenders.

What is the process for post-shipment finance?

Post-shipment finance may vary in loan amounts and type, but here are some common processes below:

  • The exporter completes the shipping and compiles all required documentation to apply for a loan to cover the cost of goods shipped
  • The bank prepares a loan offer in consideration of the proof of goods and or services sold to international customers.
  • The loan amount may be equivalent to the full value of goods to be exported. You will be presented with varying options. NB: With higher loan offers, exporters should expect a higher interest rate.
  • Expect time frames to last until you get payment from your international client. However, it may be longer on other occasions.
  • The exporter pays back the loan upon receipt of payment from their customer.
  • Sometimes, the exporter gets paid in just a few months, thereby settling their loan in a shorter time period.
  • The exporter applies for another loan when the next export is organised.

This is a typical process so there will be variations according to your loan provider. Ensure that you understand the whole process and that you are aware of all expectations and obligations as a borrower before signing any contract or paperwork.

Expect a lot of administration work and tedious processing but once you get the financing, it will be worth it since you’ll have the funds you need to maintain business operations while waiting for customer payments to come in.

The different types of post-shipment finance

There are three main types of post-shipment finance that exporters can make use of, including:

Physical export

Physical export loans are assigned and grated to the exporter declared in the trade documents

Deemed export

Deemed export makes out the loan to the supplier of goods to designated agencies.

Capital goods and project export

Capital goods and project export assigns the loan to the international buyer but remits the funds to the domestic exporter.

Other types are available but these three mentioned above are the most common types of post-shipment finance.

How post-shipment finance can help your export business

There are times when your international customers will choose the option to make payment only upon receipt of goods. This can present a great challenge on your cash flow and operational capital. This is where post-shipment finance can step in to relieve you of the financial burden while waiting for payments to come in. Your client also gains flexibility in making payments.

With post-shipment finance, there is less anxiety and stress and more peace of mind. You can just focus on the operation and growth of your business. More so, you won’t need to take out loans that require collateral just to get operational funding.

Most important of all, you get a hold of essential funds to run your business and pay overhead costs, especially staff pays and other business expenses.

Who can use post-shipment finance?

Post-shipment finance is an option to all eligible exporters, whether you have a small or large-scale business. Whatever your product or service be, whether you are an individual exporter, a manufacturing exporter, an export house or an export agency, you can take out this type of financing. You only need to supply all the required documentation to apply for post-shipment financing.

What documentation is needed to access a post-shipment loan?

We mentioned that banks and lenders will have their own unique processes and require different documents but most of them will ask you to provide a similar set of documentation which you need to submit in order to be considered for a post-shipment loan.

Typically, this includes:

  • Exporter details including accreditations, company records, registration papers and more
  • Proof of Insurance or Certificate of Insurance
  • Import-Export Certificate
  • Commercial Invoice
  • Packing List
  • Inspection Certificate
  • Airway Bill

Complete and compile all these basic documentary requirements before you proceed with any post-shipment loan application.

Tips when it comes to taking out post-shipment finance

There are so many benefits to choosing post-shipment finance for your business but as with other loans, financing should only be considered when really needed due to the risks it carries.

Always ensure that your business has the capacity to make loan repayments as they become due and be certain that you are fully aware of the interest rates and how much total interest will be charged to the loan.

Closing

By understanding the requirements, processes and implications of post shipment finance options, exporters can make informed decisions about if and when they should use this financing option to aid their operations.

With careful and planned use, this finance tool can aid smooth cash cycles and minimise financial stress for those exporters offering international trade markets.

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