Pre-Shipment Finance vs. Post-Shipment Finance — What's the Difference?
Edited by Tayyaba Rehman — By Fiza Rafique — Published on December 31, 2023
Pre-Shipment Finance funds production or purchase before export, while Post-Shipment Finance covers credit after goods are shipped.
Difference Between Pre-Shipment Finance and Post-Shipment Finance
Table of Contents
ADVERTISEMENT
Key Differences
Pre-Shipment Finance refers to the financing given to exporters before they ship their goods. This helps in acquiring raw materials, processing, packing, and other pre-export activities. Conversely, Post-Shipment Finance pertains to the funding provided to exporters after the goods have been shipped but before receiving payment.
An exporter might need Pre-Shipment Finance to ensure they can source and prepare goods effectively without financial strain. On the other hand, Post-Shipment Finance aids exporters in maintaining liquidity while awaiting payment, particularly if there's a credit period involved.
The risk profile varies between Pre-Shipment Finance and Post-Shipment Finance. With Pre-Shipment Finance, the risk is linked to production and preparatory processes. In contrast, Post-Shipment Finance concerns the buyer's creditworthiness and external factors like exchange rates.
Banks and financial institutions offer both Pre-Shipment Finance and Post-Shipment Finance to support exporters. While Pre-Shipment Finance is essential for production and getting goods ready, Post-Shipment Finance ensures exporters don't face cash flow challenges post-export.
It's common for exporters to utilize both Pre-Shipment Finance and Post-Shipment Finance in their operations. By doing so, they ensure a smooth flow from production to receiving payment, balancing their finances throughout the export process.
ADVERTISEMENT
Comparison Chart
Purpose
Financing pre-export activities
Financing post-export, awaiting payment
Risk Profile
Linked to production processes
Concerns buyer's credit and external factors
Typical Duration
Until shipment of goods
Until payment received from buyer
Beneficiaries
Exporters needing funds for production
Exporters awaiting payment post-shipment
Involves Activities
Raw material purchase, processing, packing
Maintaining liquidity, managing credit periods
Compare with Definitions
Pre-Shipment Finance
Funds availed for production activities prior to export.
With Pre-Shipment Finance, the manufacturer could process the large overseas order.
Post-Shipment Finance
Funds provided after goods are exported but before payment.
The exporter opted for Post-Shipment Finance to bridge the gap until the buyer's payment arrived.
Pre-Shipment Finance
Financing that aids in the preparation of goods for export.
To meet the tight deadline, the exporter used Pre-Shipment Finance for rapid processing.
Post-Shipment Finance
Capital availed by exporters post shipment awaiting payment.
Due to the 90-day credit period, the company sought Post-Shipment Finance to manage its cash flow.
Pre-Shipment Finance
Liquidity solution for exporters before shipment.
Ensuring timely delivery, the firm utilized Pre-Shipment Finance to speed up production.
Post-Shipment Finance
Financing to ensure cash flow continuity after exporting.
Given the buyer's delayed payment history, Post-Shipment Finance was a prudent choice for the seller.
Pre-Shipment Finance
Financing provided before goods are exported.
The textile company secured Pre-Shipment Finance to purchase raw materials.
Post-Shipment Finance
Funds covering the period from shipment to receiving payment.
The jewelry exporter relied on Post-Shipment Finance due to the long international payment process.
Pre-Shipment Finance
Capital accessed to support pre-export processes.
Pre-Shipment Finance helped the company cover costs of packaging specialized products.
Post-Shipment Finance
Liquidity solution after goods are dispatched and pending payment.
With Post-Shipment Finance, the firm could handle other orders while waiting for funds.
Common Curiosities
Why would an exporter need Post-Shipment Finance?
Exporters use Post-Shipment Finance to maintain liquidity while awaiting payment, especially during extended credit periods.
Who typically provides these financing options?
Banks and financial institutions commonly offer both Pre-Shipment Finance and Post-Shipment Finance to support exporters.
What activities does Pre-Shipment Finance typically cover?
Pre-Shipment Finance covers pre-export activities like raw material purchase, production, packing, and other preparatory processes.
Is collateral needed for Pre-Shipment Finance?
Often, Pre-Shipment Finance requires collateral, which can be the goods to be exported or other assets.
Is Pre-Shipment Finance riskier than Post-Shipment Finance?
Risk varies. Pre-Shipment Finance involves production risks, while Post-Shipment Finance deals with buyer creditworthiness and external factors.
How quickly can one avail Pre-Shipment Finance?
The speed of availing Pre-Shipment Finance varies by institution but is generally swift, considering its purpose.
What happens if there's a delay in shipment post securing Pre-Shipment Finance?
Delays after securing Pre-Shipment Finance might lead to increased interest or renegotiation of terms with the financier.
Can an exporter avail both types of finance for a single transaction?
Yes, exporters can utilize both Pre-Shipment Finance and Post-Shipment Finance for seamless financial flow in a single export deal.
Are there any costs associated with these financings?
Yes, both Pre-Shipment Finance and Post-Shipment Finance have interest and potential processing fees.
Can small exporters also avail these financings?
Yes, both Pre-Shipment Finance and Post-Shipment Finance are available for small exporters, though terms might differ.
What happens if the buyer defaults on payment in Post-Shipment Finance?
In case of default with Post-Shipment Finance, the financial institution may claim the collateral or pursue other remedies.
Is Post-Shipment Finance only for international transactions?
Primarily, Post-Shipment Finance is for international exports, but some institutions might offer it for domestic transactions based on terms and conditions.
How long can Post-Shipment Finance be availed after shipping goods?
Post-Shipment Finance duration depends on the agreement, often lasting until the buyer's payment is received.
Can these financings be availed for any type of goods?
While most goods qualify, specific criteria might apply depending on the financing institution and nature of goods.
What documents are needed for Post-Shipment Finance?
Post-Shipment Finance typically requires shipment proof, invoices, and potentially the buyer's credit information.
Share Your Discovery
Previous Comparison
Uniform Motion vs. Non-Uniform Motion
Next Comparison
Plant Fats vs. Animal FatsAuthor Spotlight
Written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Edited by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
