Export plays a dominant role in the economy of our country. In the export trade, exporter needs the finance at different stages right from the stage he gets an export order to supply the goods from an overseas buyer. The finance is required for procuring, processing, manufacturing, assembling and packaging the goods for export in the pre shipment stage. After the shipment is made, exporters sometimes will have to give credit to the importer for an agreed period and he has to wait for the value till the expiry of the credit period (maturity of export bill). Even if no credit is allowed to importer, the capital of the exporter is blocked till documents reach the importer, he makes the payment and the amount is collected by the exporter’s bank.
Thus the post shipment credit is required during the intervening period between the shipments of goods till receipt of payment there against. Therefore, these are two stages in export financing:
1. Pre Shipment Finance and
2. Post Shipment Finance.
The advance allowed for arranging goods falls into the category of pre shipment finance and the advance made against the shipping documents i.e. negotiation of foreign bills falls under the category of post shipment finance.