Pre-Shipment Finance

Pre-Shipment Finance

A short-term loan or other financing arrangement that an institution extends to a company to pay for inventory or other costs while it prepares its products for export.
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The companies also resorted to availing post-shipment finance by discounting "Export Bills" from one of the member banks, while pre-shipment finance was obtained from another member bank by way of SBLC, leading to double financing.
The issue is that Myanmar exporters that (would) have a purchase order from a foreign buyer, or even a letter of credit (L/C) from a foreign bank, have a hard time to convert this payment promise into liquidity or cash that they would need to pay for wages, production inputs and working capital (pre-shipment finance).
Pre-shipment finance is riskier as the borrowing company may run into difficulties at the production or delivery stage, implying a much higher risk of nondelivery than in the case of post-shipment credit.
"LC builds discounting, availing pre-shipment finance under confirmed letter of credit transactions," Shaikh said giving an example.
Similarly, pre-shipment finance can provide a manufacturer or exporter with the working capital needed to produce and ship goods once an order has been confirmed from a quality buyer, and is backed by documentary credit.
Pre-Shipment Finance - provides |capital to produce and ship goods.
ADCB has launched a customised offering specifically designed for all Jebel Ali Free Zone companies including a trade finance platform (ProTrade) and a cash management platform (ProCash), plus SME products such as the ADCB 'BusinessEdge Pre-shipment Finance' for export oriented businesses and 'BusinessEdge Free Zone Platinum Account', a premium current account catering to free zone customers.
We also plan to launch a specialised pre-shipment finance programme for exporters in the SME segment.
Red-clause L/Cs enable an exporter to obtain pre-shipment finance, which is a percentage of the L/C amount, from the advising bank.