Export Finance in India: Packing Credit and Post-Shipment Credit Explained
An export order often means buying raw material, paying workers and shipping goods weeks or months before the buyer pays. Export finance from banks fills that gap, and it is usually priced more favourably than general working capital because export receivables are seen as lower risk.
Export finance comes in two stages. Pre-shipment finance, called packing credit, funds raw materials, production and packing against a confirmed order or letter of credit. It can be in rupees or in foreign currency (PCFC). Post-shipment finance funds the gap between shipment and payment, by negotiating or discounting your export bills. Both are repaid from the export proceeds.
Pre-shipment finance: packing credit
Packing credit is a loan that funds the cost of producing and packing the goods. The bank lends against a confirmed export order or an LC, usually up to a share of the order value. You must ship within the agreed period and repay the loan from the export proceeds. Packing credit in foreign currency, known as PCFC, can be cheaper when foreign interest rates are lower than rupee rates, and it is naturally repaid by the foreign currency payment.
Post-shipment finance
- Negotiation of documents under an LC: the bank pays you once it accepts your documents, and then collects from the issuing bank
- Purchase or discounting of export bills: for DP or DA collections, the bank pays you upfront, less interest, and collects from the buyer
- Advance against bills sent for collection
Post-shipment finance converts the waiting time into cash, so you can take on the next order sooner.
What banks usually ask for
- IEC, GST registration and the AD code relationship with that bank
- Confirmed export orders or LCs
- Financial statements and a record of past exports, if any
- Details of the buyer and payment terms
- Sometimes export credit insurance cover, or ECGC cover taken by the bank
Many banks also offer MSME schemes with simpler documentation. An Udyam registration can help you access them.
Managing currency risk
If you are paid in foreign currency, the rupee value of your payment can change between order and payment. Banks offer forward contracts that fix the exchange rate for a future date. PCFC also reduces currency risk, because the loan and the payment are in the same currency.
Plan finance with your payment terms
Your finance needs depend on your payment terms. Advance payments need little finance, while DA and open account terms need more. Our guide to export payment terms and our ECGC guide explain how to keep that finance safe.
Frequently asked questions
What is packing credit?
Packing credit is a bank loan given before shipment to buy raw materials, manufacture and pack goods for a confirmed export order. It is repaid from the export proceeds.
What is PCFC?
Packing Credit in Foreign Currency is packing credit given in a foreign currency such as US dollars, often at a lower interest rate, and repaid from the foreign currency export payment.
Can new exporters get export finance?
Yes, usually with a confirmed order or LC. Banks may ask for collateral, an MSME scheme or credit insurance when you have no export history.
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