Packing Credit — Pre-Shipment and Post-Shipment Export Finance

Packing Credit explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Export credit comes in two stages: pre-shipment credit, or packing credit, funds procurement and manufacture against a confirmed order or letter of credit; post-shipment credit funds the gap between shipment and realisation. Both are available in rupees or foreign currency and are liquidated out of export proceeds.

The Two Stages of Export Finance

An export order creates a funding gap at two distinct points. First, the exporter must buy raw material, manufacture, pack and ship — spending money months before any payment arrives. Second, once the goods are shipped, the receivable sits outstanding for the credit period agreed with the buyer.

Export credit addresses both, and the two facilities are designed to hand over to each other: pre-shipment credit is typically liquidated by converting it into post-shipment credit at the point of shipment.

Pre-Shipment Credit (Packing Credit)

What it funds

Purchase of raw materials, processing, manufacturing, warehousing, packing, transportation to the port and other pre-shipment expenses relating to a specific export order or letter of credit.

Basis of sanction

• A confirmed export order, or
• An irrevocable letter of credit in favour of the exporter, or
• Under a running account facility, on the exporter's track record, with the order or LC produced afterwards.

Quantum

Banks generally advance against the FOB value of the order or the domestic cost of production, whichever is lower, after applying a margin. The margin varies with the commodity, the exporter's standing and the perceived risk of the trade.

Tenor

Concessional pre-shipment credit is ordinarily available for up to 180 days, with extension possible where the operating cycle genuinely requires it, subject to the applicable RBI framework and the bank's own credit policy. Beyond the permitted period the advance loses its concessional character and attracts commercial rates.

Post-Shipment Credit

Once the goods are shipped, the exporter needs funding until the buyer pays. Post-shipment credit takes several forms:

Post-shipment credit is normally available up to the notional due date of the bill, subject to the overall limit prescribed for concessional treatment, and it must be liquidated out of the export proceeds.

Rupee Credit versus Foreign Currency Credit

The natural hedge is the main attraction of PCFC. An exporter borrowing in the currency it will be paid in removes an exchange exposure rather than merely funding one. Compare the all-in cost, though — the spread over the benchmark, arrangement fees and the cost of any forward cover that would otherwise be needed.

How ECGC Fits

Banks lending export credit typically take cover under ECGC's Export Credit Insurance for Banks. That cover protects the bank against default on the advance and is a substantial part of why export credit is available at the terms it is. Two consequences follow for the exporter:

• The exporter's own ECGC standing affects the bank's willingness and pricing.
• An exporter on the ECGC caution list, or with a poor claims history, will find export credit constrained regardless of its balance sheet.

Liquidation Rules and Why They Matter

Packing credit is meant to be liquidated out of the proceeds of the corresponding export. Banks permit substitution — liquidating one drawal from the proceeds of a different shipment — within defined limits, which is what makes a running account workable. But the discipline matters:

• Liquidation from domestic sales proceeds or from other borrowings defeats the purpose of the facility and can cost the concessional treatment.
• Diversion of packing credit to non-export uses is a serious breach, with consequences under the facility documents and potentially under FEMA.
• Unliquidated advances beyond the permitted period attract commercial interest from the date of the original advance, not from the date of expiry.

When the Shipment Does Not Happen

Orders get cancelled. When they do, the packing credit becomes an ordinary advance: concessional treatment is withdrawn, commercial rates apply retrospectively, and the bank calls for repayment. Tell the bank early — a negotiated conversion or extension is available where the cause is genuine and disclosed, and is not available where the bank discovers the position itself.

Documentation the Bank Will Want

1. Sanctioned export credit limit and executed facility documents
2. Export order or letter of credit (or the running account undertaking)
3. IEC, RCMC and GST registration
4. Stock and receivable statements at the agreed frequency
5. Shipping bill, invoice and transport document on shipment
6. Bill of exchange and the documents for negotiation or purchase
7. ECGC policy details and buyer limit approvals
8. e-BRC on realisation, for closing the EDPMS entry

Practical Tips

• Apply for the running account facility once you have a stable order book — the administrative saving is significant.
• Compare PCFC and rupee credit on an all-in basis including hedging cost, not on headline rates.
• Match the tenor to your actual operating cycle; repeated extension requests weaken your position with the bank.
• Reconcile packing credit drawals to shipments monthly, so no advance quietly ages past the permitted period.
• Keep the ECGC policy and buyer limits current — they underpin the bank's cover as well as your own.
• Where a large order is at risk of cancellation, talk to the bank before the due date, not after.

Related Services & Guides

• Export Credit Interest Rates
• ECGC and Export Credit Insurance
• Realisation of Export Proceeds
• More Guides