Pre-Shipment Finance vs. Post-Shipment Finance: What's the Difference?
Edited by Aimie Carlson || By Janet White || Published on February 2, 2024
Pre-shipment finance is for exporters to finance their goods before shipment, while post-shipment finance is for financing after goods are shipped.
Key Differences
Pre-shipment finance refers to financial assistance given to exporters before the shipment of goods, supporting activities like purchasing raw materials and production. Post-shipment finance, on the other hand, is a financial service provided after the shipment of goods, mainly to bridge the gap until payment is received from the buyer.
Pre-shipment finance is essential for exporters to fulfill orders without straining their cash flow. It helps in managing the production and packing costs. In contrast, post-shipment finance assists exporters in maintaining liquidity after shipping goods, as they await payment, ensuring they can continue operations smoothly.
The duration of pre-shipment finance is typically until the goods are ready for shipment. It's a short-term loan facilitating the export process. Conversely, post-shipment finance is generally extended from the time of shipment until the receipt of payment, covering the credit period extended to the buyer.
Pre-shipment finance is often secured against the value of the export order or letter of credit. It's crucial for the initial stages of an export transaction. Meanwhile, post-shipment finance is usually secured against shipping documents or bills of lading, providing financial stability after the export has occurred.
Pre-shipment finance is instrumental in enhancing an exporter's competitive edge by allowing them to accept larger orders. In contrast, post-shipment finance plays a vital role in ensuring the exporter's sustainability by providing cash flow during the extended credit periods often required by importers.
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Comparison Chart
Timing
Provided before shipping goods
Provided after shipping goods
Purpose
To finance production and preparation for export
To finance the exporter post-shipment until payment is received
Duration
Until shipment of goods
From shipment until payment receipt
Security/Collateral
Often against export orders or letters of credit
Usually against shipping documents or bills of lading
Impact on Exporter
Facilitates fulfilling orders, improves liquidity for production
Helps maintain liquidity post-shipment, covers credit period
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Pre-Shipment Finance and Post-Shipment Finance Definitions
Pre-Shipment Finance
Pre-shipment finance is essential for maintaining cash flow during the pre-export stage.
To avoid cash flow issues, the exporter sought pre-shipment finance for its new contract.
Post-Shipment Finance
Post-shipment finance is crucial for covering the credit period extended to the buyer.
To cover the 60-day credit term, the exporter used post-shipment finance.
Pre-Shipment Finance
Pre-shipment finance is a loan provided to exporters to cover costs before shipping goods.
The company utilized pre-shipment finance to buy materials needed for the large overseas order.
Post-Shipment Finance
Post-shipment finance is a tool to ensure business continuity post-export.
The electronics exporter utilized post-shipment finance to keep the production line running for new orders.
Pre-Shipment Finance
It's a short-term advance to facilitate the execution of an export order.
Pre-shipment finance helped the small business meet the demand of its first international client.
Post-Shipment Finance
This finance aids in managing the exporter's cash flow after goods have been dispatched.
After shipping the order, the exporter relied on post-shipment finance to pay its suppliers.
Pre-Shipment Finance
Pre-shipment finance assists in financing the production and packing of export goods.
Pre-shipment finance enabled the manufacturer to ramp up production for the upcoming export.
Post-Shipment Finance
Post-shipment finance is a loan provided to exporters after goods are shipped.
The exporter obtained post-shipment finance to maintain operations while waiting for payment.
Pre-Shipment Finance
This finance type supports exporters in managing early-stage export-related expenses.
The garment exporter used pre-shipment finance to cover the costs of fabric and labor.
Post-Shipment Finance
It's financial support for exporters against shipping documents, bridging the payment gap.
Post-shipment finance helped the company stay liquid despite delayed payments from overseas buyers.
FAQs
Who can apply for pre-shipment finance?
Exporters with confirmed orders needing funds for production and packing.
What is post-shipment finance?
Financial assistance provided to exporters after goods have been shipped.
Who benefits from post-shipment finance?
Exporters awaiting payment from buyers after shipment of goods.
How long does pre-shipment finance last?
Typically until the goods are shipped.
What collateral is needed for pre-shipment finance?
Generally secured against export orders or letters of credit.
What is pre-shipment finance?
It's a loan to exporters for covering production and preparation costs before shipment.
What security is required for post-shipment finance?
Usually secured against shipping documents or bills of lading.
Are interest rates high for pre-shipment finance?
Rates vary but are generally competitive to support exports.
What role does post-shipment finance play?
It maintains exporter's liquidity post-shipment during buyer's credit period.
Is post-shipment finance suitable for large exporters?
Yes, it's beneficial for exporters of all sizes.
Are there risks in post-shipment finance?
Main risks involve delayed payments or default by the buyer.
What's the duration for post-shipment finance?
From shipment until receipt of payment from the buyer.
How does pre-shipment finance help exporters?
It improves liquidity for production and order fulfillment.
Can pre-shipment finance cover all production costs?
It typically covers a major portion, but not always 100%.
How quickly can pre-shipment finance be arranged?
It depends on the lender, but usually it's arranged swiftly after approval.
Does post-shipment finance cover the entire credit period?
It generally covers the period until the exporter receives payment.
What risks are associated with pre-shipment finance?
Risks include production delays and changes in order value.
Can small businesses access pre-shipment finance?
Yes, if they have a confirmed export order.
What are the interest rates for post-shipment finance?
Rates are usually competitive, depending on the risk and duration.
Is it easy to get post-shipment finance?
It's generally accessible with proper documentation and creditworthiness.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
