International Trade Finance

The concept of Forfeiting in Export Finance

Forfeiting is a mechanism of financing exports.

  • By discounting export receivables
  • Evidenced by bills of exchange or promissory notes
  • Without recourse to the seller (viz. exporter)
  • Carrying medium to long term maturities
  • On a fixed rate basis (discount)
  • Upto 100 percent of the contract value.

The word `forfeit’ is derived from the French word `a forfeit’ which means the surrender of rights.

Simply put, Forfeiting is the non-recourse discounting of export receivables. In a forfeiting transaction, the exporter surrenders, without recourse to him, his rights to claim for payment on goods delivered to an importer, in return for immediate cash payment from a forfeiter.… Read the rest

Abey Francis

Letter of Credit – Definition, Types and Process

Letter of Credit is one of the most popular and more secured of method of payment in recent times as compared to other methods of payment. A Letter of Credit refers to the documents representing the goods and not the goods themselves. Banks are not in the business of examining the goods on behalf of the customers. Typical documents, which are required includes commercial invoice, transport document such as Bill of lading or Airway bill, an insurance documents etc. L/C deals in documents and not goods.

Definition of  Letter of Credit

A Letter of Credit can be defined as “an undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank within the validity of the L/C”.… Read the rest

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Post-Shipment Finance

Post shipment finance is provided to meet working capital requirements after the actual shipment of goods. It bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof. Whereas the finance provided after shipment of goods is called post-shipment finance.

DEFINITION:

Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is called Post-shipment Credit.

IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE:

  • To pay to agents/distributors and others for their services.
  • To pay for publicity and advertising in the over seas markets.
  • To pay for port authorities, customs and shipping agents charges.
… Read the rest
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Pre-shipment Finance

Pre-shipment is also referred as “packing credit”. It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit.

DEFINITION: Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is known as pre-shipment credit. Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports.

IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:
  • To purchase raw material, and other inputs to manufacture goods.
… Read the rest
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Introduction to Export Finance

Credit and finance is the life and blood of any business whether domestic or international. It is more important in the case of export transactions due to the prevalence of novel non-price competitive techniques encountered by exporters in various nations to enlarge their share of world markets.

The selling techniques are no longer confined to mere quality; price or delivery schedules of the products but are extended to payment terms offered by exporters. Liberal payment terms usually score over the competitors not only of capital equipment but also of consumer goods.

The payment terms however depend upon the availability of finance to exporters in relation to its quantum, cost and the period at pre-shipment and post-shipment stage.… Read the rest

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