IndiaFilings » Learn » Packing Credit

Packing Credit

Packing Credit

Packing Credit

Packing credit is the most commonly used trade finance tool by an exporter. The international sales cycle is longer when compared to domestic sales, which makes packing credit a convenient line of credit for exporters. The advance is given to purchase raw materials, process, manufacture, pack, market, and transport the required goods and services. In addition, the packing credit is also used to finance the working capital and meet the requirements of wages, travel expenses, utility payments, etc., for companies listed as exporters—the features and eligibility of Packing Credit mentioned in the article.

Significance of Packing Credit

The export packing credit facility supports the exporter’s supply chain and provides funds to bridge the gap until the receipt of final payment from the customer. The bank that issues the packing credit usually advances a partial or complete proportion of the invoice based on the assumed risk. The loan would be granted in either the exporter or another easily convertible currency mutually decided by both the exporter and the lending bank.

Features of Packing Credit

The salient features of packing credit are

  • Self-liquidating
  • Credit to buy goods
  • Covers manufacturing expenses
  • A lower rate of interest
  • Flexible terms of credit


The self-liquidating features are the essential feature of the packing credit. The loan could be liquidated against the final payment of the services and goods or converted to post-shipment finance after the shipment of the goods. This is useful to small exporters who may not have the required capital. Moreover, this eliminates a lot of risk from financing, as the bank has the assurance of payment before the exporter receives the proceeds.

Credit to Buy Goods

Packing credit is a convenient way to purchase expensive goods or raw materials, even if they exceed the allocated budget.

Cover Manufacturing Expenses

Packing credit covers manufacturing-related expenses like wages, cost of raw materials, etc. This is useful if the exporter has outsourced all or a part of the goods to be shipped.

Lower Rate of Interest

Packing credit charges a lower rate of interest when compared to a typical overdraft facility. Every bank may not have a standard interest rate for packing credit. It differs based on the nature of the business, borrowing amount, etc. However, it will be lower than various standard loans.

Flexible Terms of Credit

Due to the self-liquidating feature and customized loans, the packing credit enjoys flexible terms. The bank permits the exporter to repay the loan after receiving the final payment and resumes financing all the interim requirements of the exporter.

Nature of Facility

Pre-shipment finance extended as working capital.

Target Group

Manufacturers and merchant exporters can avail of Rupee Packing Credit at a concessional interest rate.

Eligibility Criteria

  • An existing customer already availing of credit facilitates
  • New units
  • The takeover of existing units from other banks/ FIs with a satisfactory track record.

Quantum of Loan

The quantum of loans is need-based finance.


The margin percentage is determined based on the nature of the order, commodity, capability of the exporter, etc., considering the RB guidelines for liberal finance to the export.


The pricing is fixed at competitive pricing.

Collateral Security

The collateral security is applicable in the case of cash credit/ working capital limits.

Repayment Period

The period for which the bank gives packing credit is based on the manufacturing/ trade cycle or specific requirements of the individual export, not more than 180 days.

Processing Fee

The processing fee is applicable to cash Credit Facility/ working capital limits.