Packing Credit is a pre-shipment credit extended to the exporters to facilitate him for meeting several financial requirements such as purchase of raw materials and its processing, packing, storing and shipping of goods. It is a short term credit available to all exporters. Hence, this is called pre-shipment credit which is essentially working capital finance made available to the exporters to arrange for goods as per the export. It is generally granted in the form of loans or cash credits. It may also be granted in the form of overdraft facilities. The exporter who wants to avail the pre-shipment credit facility should make a formal application to his bank along with the firm contract with the buyer or a copy of the export order or a copy of the letter of credit.Major Types of Packing Credit
Pre-shipment finance is available in various forms. Important types of packing credit are explained very briefly.1. Extended Packing Credit Loan
This type of packing credit is advanced by the bankers to their customers who are considered as first class customers for them. This facility is extended for a short period in order to enable the customers acquire or procure goods. Once goods are acquired in the custody of the exporter, the bank converts this clean advance into hypothecation or pledge loan.
- Packing Credit Loan (Hypothecation): This facility may be an extended one over what we had studied above after procuring the raw materially by the customer. Or this credit may be made available for obtaining raw materials, work-in-progress and finished goods.