Packing Credit: A Vital Trade Finance Tool for Exporters

Packing credit is a widely utilized trade finance tool by exporters, offering a convenient line of credit especially crucial due to the longer international sales cycle compared to domestic sales. This financial advance empowers exporters to purchase raw materials, process, manufacture, pack, market, and transport essential goods and services. Additionally, packing credit serves to finance working capital, covering necessities like wages, travel, and utility payments for registered exporting companies. This article outlines the features and eligibility requirements of Packing Credit.

Significance of Packing Credit

The export packing credit facility plays a pivotal role in supporting an exporter's supply chain, providing the necessary funds to bridge the gap until the final payment from the customer is received. Typically, banks advance a portion or the entire invoice amount, based on the assessed risk level. The loan can be issued in the local currency or an agreed-upon convertible currency, depending on the agreement between the exporter and the lending bank.

Essential Features of Packing Credit

The salient features of packing credit are:

Self-liquidating: Enables liquidation against the final payment of goods and services or conversion to post-shipment finance after shipment—crucial for small exporters lacking initial capital.
Credit to Buy Goods: Allows exporters to purchase necessary goods and raw materials, even if costs exceed budget allocations.
Covers Manufacturing Expenses: Finances manufacturing-related costs, such as wages and raw materials, vital for those outsourcing parts of their production.
Lower Rate of Interest: Offers interest rates lower than typical overdraft facilities, with rates varying by institution and business nature, yet generally lower than standard loans.
Flexible Terms of Credit: The self-liquidating nature and customizable loans offer flexible terms, with repayment allowed post-final payment reception, continuing interim financial support.

Application and Eligibility

Nature of Facility

Packing credit is extended as pre-shipment finance and classified as working capital.

Target Group

Eligible manufacturers and merchant exporters can access Rupee Packing Credit at concessional interest rates.

Eligibility Criteria

Existing customers already using credit facilities
New units seeking financial support
Businesses transitioning from other banks/financial institutions demonstrating satisfactory track records

Financial Details

Quantum of Loan

The loan amount is determined on a need-based basis, tailored to meet the specific financial demands of the export process.

Margin

The margin percentage is calculated based on factors like order nature, commodity type, and exporter capability, aligning with Indian Reserve Bank guidelines for liberal export financing.

Pricing

Packing credit offers competitive pricing, providing exporters with cost-effective financing solutions.

Collateral Security

Collateral security applies to cash credit/working capital limits, ensuring financial security in capital-limited situations.

Repayment Period

The repayment schedule is aligned with the manufacturing/trading cycle or tailored to the specific needs of each export, without exceeding 180 days.

Processing Fee

A processing fee applies to cash credit facilities/working capital limits, ensuring administrative costs are adequately covered.

For businesses involved in international transactions, securing a robust financial facility like packing credit is crucial to maintaining a competitive edge in the global market.

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Frequently Asked Questions

Common questions about Packing Credit for Exporters: Features & Eligibility.

Packing credit is a short-term loan facility provided by banks to exporters to finance their working capital needs, such as purchasing raw materials, processing, manufacturing, packaging, marketing, and transporting goods for export. It is a self-liquidating credit that can be repaid from the proceeds of the export sale.

Manufacturers and merchant exporters are eligible for packing credit. Existing customers already availing credit facilities, new units, and existing units being taken over from other banks or financial institutions with a satisfactory track record can apply for packing credit.

Some key features of packing credit include self-liquidating credit to buy goods, coverage of manufacturing expenses, lower interest rates compared to other loans, and flexible repayment terms based on the export cycle.

The quantum of packing credit is determined based on the exporter's specific needs and requirements for the export order. It is a need-based finance facility.

The repayment period for packing credit is based on the manufacturing or trade cycle or specific requirements of the individual export, but it cannot exceed 180 days.

Collateral security requirements are applicable in the case of cash credit or working capital limits, similar to other loan facilities offered by banks.

The pricing or interest rate for packing credit is fixed at competitive rates by the lending bank, taking into consideration factors such as the nature of the export business, the borrowing amount, and the bank's policies.

A processing fee is applicable for packing credit, similar to other cash credit or working capital limit facilities offered by banks.

Packing credit is a significant facility for exporters as it supports their supply chain and provides funds to bridge the gap until the final payment is received from the customer. It helps exporters to meet their working capital requirements during the export cycle.

The self-liquidating feature of packing credit is beneficial for exporters, especially small exporters who may not have sufficient capital. It eliminates financing risks for the bank as the loan can be liquidated against the final payment for the exported goods or services.