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Some Information On Export Some Information On Export Financing Financing
Some Information On Export Some Information On Export Financing Financing
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A. Pre-shipment Credit
Pre Shipment Finance is provided by financial institutions when the Exporter wants the payment of the goods before shipment. The objectives of pre shipment finance is to enable the exporter to: f f
Procure raw materials. Carry out manufacturing process. Provide a secure warehouse f goods and raw materials. for Process and pack the goods. Ship the goods to the buyers. Meet th fi M t other financial cost of the business. i l t f th b i
Types
Packing Credit Advance against Cheques /Draft etc. representing Advance Payments.
Forms :
Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC)
Basis : provided against evidence of shipment of g p g p goods/supplies pp Nature: Can be secured or unsecured. Since the finance is extended
g p p against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In case it involves advance against un-drawn balance, it is usually unsecured in nature.
Quantum : C b extended up t 100% of th iinvoice value Can be t d d to f the i l Period : Can be short terms or long term, depending on the payment
terms offered by the exporter to the importer. Six months in case of cash importer exports.
Post-shipment Credit-Types
5. Advance against Undrawn Balance g It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, subject to t a maximum of 10 percent of the export value against an i f t f th t l i t undertaking from the exporter 6. Advance A i t Cl i 6 Ad Against Claims of Duty Drawback fD t D b k This credit is given only if the in house cost of production is higher in relation to export price due to the existing duty structure. Banks grant advances at lower rate of interest for a period of 90 days and only if other types of export finance are extended to the exporter by the same bank. After the shipment the exporters lodge their claims g to the relevant government authorities. The bank is authorized to receive the claim amount directly from the concerned government authorities.
Forfaiting
Forfaiting refers to non-recourse discounting of export p , , receivables. The exporter surrenders, without recourse to him, his rights to claim for payment on goods delivered to an importer. Forfaiter pays exporter in cash and undertakes the risk associated with the export. i t d ith th t EXIM bank plays intermediary role between exporter and the overseas forfaiting agency. The exporter approaches EXIM bank for forfaiting transaction. The bank receives bills from the transaction exporter and sends them to the forfaiter for discounting. The bank arranges for the discounted proceeds to be remitted to the Indian exporter. The bank issues appropriate certificates to enable exporters to remit commitment fees and charges. RBI has allowed Authorised dealers to undertake forfaiting of p medium term export receivables. Involves two cost elements: Commitment fee, payable by the exporter to the forfeiter and Discount fee payable by the exporter for the entire period of credit involved and deducted by th f f it f b the forfaiter from the amount paid to the exporter against the th t id t th t i t th availed bills of exchange.
Benefits to Banks
Banks can offer a novel product range to clients, which enable the client to gain 100% finance, as against 80-85% in case of other discounting Bank i fee based income. B k gain f b di Lower credit administration and credit follow up.
Factoring
It is an attractive way of providing export finance to exporters. In this system, factor bears the complete credit risk A factor is a special type of agent who depending upon the type risk. who, of agreement, offers a variety of services. These services include coverage of credit risk, collection of export proceeds, maintenance of accounts receivables and advance of funds. Purchase of receivables of its clients without recourse is the most important service of the factor. A big advantage to the exporter is that it is without recourse financing. This means that the risk of non-payment by the importer is to be borne entirely by the factor. In India, International Export Factoring services on with recourse basis have been approved by the RBI. It provides a new dimension to management of export receivables. SBI Factors and Commercial Services Pvt. Ltd., Bombay have been permitted to provide International Export Factoring. In this system, the exporter enters into an export factoring agreement with exporters factor. The exporters ship goods to approved foreign buyers. Each invoice is made payable to a specific factor in the importers country. Copies of invoices and shipping documents are sent to the Importers factor. Exporters factor will make prepayment to the export against approved export receivables. On receipt of payments from the importer on due date of invoice, importers factor remits the f d t th th fund to the exporters factor. The exporters factor pays to the exporter after deducting t f t Th t f t t th t ft d d ti the amount of prepayments.
Factoring
A factor is a special type of agent who depending upon the type of agreement offers a variety of ser ices These ser ices incl de co erage of credit risk ariet services. services include coverage risk, collection of export proceeds, maintenance of accounts receivables and advance of funds. g g The exporter enters into an export factoring agreement with exporters factor. The exporters ship goods to approved foreign buyers. Each invoice is made payable to a specific factor in the importers country. Copies of invoices and shipping documents are sent to the Importers factor. Exporters factor will p p y p g pp p make prepayment to the exporter against approved export receivables . On receipt of payments from the importer on due date of invoice, importers factor remits the fund to the exporters factor. The exporters factor pays to the exporter after deducting the amount of prepayments. Factoring may be disclosed or undisclosed Disclosed factoring is of two types:
Recourse factoring: The client collects the money from the customer but in case customer dont pay the amount on maturity then the client is responsible to pay the amount to the factor. It is offered at a low rate of interest and is in very common use. Nonrecourse factoring: In non recourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first The advantage of first. nonrecourse factoring is that continuous factoring
Duty paid on packing material is also eligible. However, if inputs are obtained without p y payment of customs/excise duty, no drawback will be paid. y, p If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part on which duty is paid and on which rebate/refund is not obtained will be eligible for drawback. N d d b k No drawback i available on other t b k is il bl th taxes lik sales t and octroi. like l tax d t i
The table gives allocation of the drawback allowed under tow heads namely Customs and Central Excise. The customs portion covers basic customs duty, surcharge and SAD. Excise portion covers basic and special excise duty and CVD. Duty drawback of customs portion can be paid even if exporter has availed Cenvat credit as Cenvat credit is only of excise duty and CVD credit, MF(DR) circular No. 83/2000-Cus dated 16-10-2000
It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products In such cases brand rate is fixed under products. cases, rule 6. The manufacturer has to be submit application with all details to Commissioner, Central Excise. Such application must be made within 60 y p days of export.
Value for the purposes of section 76(1)(b) will be value at the time of export p p ( )( ) p and not the original value of import of the goods. If the imported goods are used before re-export, the drawback will be allowed at a reduced percentage.