Page 99 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes The following options are available to the exporter for post-shipment credit:
(i) Export bills purchase/discounting
(ii) Export bills negotiated (against letter of credit)
(iii) Advances against bills for collection

(iv) Advances against duty drawback receivable from the government
(v) Advances against exports on consignment basis
(vi) Advances against undrawn balances
Banks can extend post shipment finance on concessional rates for periods listed below:

Demand bills – the credit period is the Normal Transit Period (NTP) as prescribed from
time-to-time by the Foreign Exchange Dealers’ Association of India (FEDAI). This period
comprises the average period normally involved from the date of negotiation/purchase/
discount till the receipt of bill proceeds in the Nostro account of the bank. It is not the same
as time taken for the arrival of the goods at the destination.
Usance bills – the credit period is a maximum of 180 days inclusive of NTP plus usance
period plus grace period.

Did u know? An exporter can also avail of factoring services for his export receivables to
finance his post-shipment activities. Under export factoring, the factoring agency factors
export invoices drawn on overseas buyers and prepays to clients an agreed percentage of
the invoice value immediately.
The following steps are involved:

The exporter ships the goods to the importer.
The exporter assigns his invoices through the export factor to the import factor who
assumes the credit risk (as per prior arrangement).

The Export factor prepays invoices.
The importer pays the proceeds to the import factor, who transfers the amount to the
export factor.

The export factor deducts prepayment already made, other charges and pays the balance
proceeds to the exporter.
The agency handling the collection of export receivables of clients (exporters) is called Export
Factor (EF) and the factor in the buyer’s country who undertakes collection and credit protection
services, is called the Import Factor.

5.2.1 Advantages to Exporters

Factoring is beneficial to the exporters in the following ways:
Elimination of the cost and delays experienced in transacting business under LC.
The import factor offers credit risk protection in case the buyer does not pay invoices
within 90 days of the due date.
ECGC policy cost can be saved. There is reduction in the administrative cost, as the exporter
will be dealing with only one Export Factor irrespective of the number of countries
involved.

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