Packing Credit

Packing credit is one of the most viable financing options for businesses that indulge in exports. It comes in handy for small and medium-sized enterprises and in turn, boosts cash flow. Generally, the international sales’ cycle is longer than the domestic ones, and often leaves a wide operating capital gap. Regardless, with the help of financing options like packing credit, exporters can meet the financial gap successfully.

What Is Packing Credit?

Packing credit is a loan extended to exporters and sellers to meet the expenses of procuring goods, before shipment. In other words, it is pre-shipment finance that is offered to exporters and comes in handy for boosting their trade. With the help of packing trade, exporters can procure raw material or finished products before shipment, and also streamline their export process seamlessly. 

Typically, such a funding option can be availed from authorised banking institutions as per RBI’s guidelines. It is essentially a government-backed policy that boosts exports to generate more foreign currency, and meanwhile, promotes financial growth of the country. Banking institutions may also extend packing credit against finished goods or stock of raw materials. Hence, it serves as working capital for export-oriented businesses

How Does Packing Credit Work?

Exporters approach a designated bank with an export order to access funds under packing credit. Once the request is processed, the executive officer of the bank visits the company and assesses the value of the export order. 

To benefit from this loan facility, a separate packing credit account is opened in the name of the exporter. Once the account is created, the bank issues credit, either in partial or full proportion of the invoice value. They also weigh in the estimated risk accompanying a specific export order before issuing the credit. 

It must be noted that the loan amount is sanctioned either in exporters’ currency or into a currency that can be readily converted. The same is decided jointly by the exporter and the banking institution as well. 

On receiving payment for a particular shipment from an overseas buyer, the banking institution holding the account, adjusts the credit balance. Subsequently, the loan availed for the said export order is closed.

Types Of Packing Credit:

Typically, there are 8 types of packing credit. They are discussed in brief below –

  • Secured shipping loan
  • Extended packing credit
  • Advances against Letter of Credit
  • Green or red Letter of Credit
  • Advances against duty drawbacks
  • Pre-shipment loan ( Foreign Currency)
  • Advances against export incentives
  • Packing Credit Against Entitlements under Advance License (Imports) 

Besides becoming aware of how packing credit works and what are its types, businesses should also learn its accompanying characteristics.

Features Of Packing Credit:

These are among the most noteworthy characteristics of this credit option –

  • It can be self-liquidated.
  • It accompanies flexible terms of credit.
  • The repayment tenure depends on export cycle (typically up to 6 months).
  • The accompanying interest rate is low. 
  • It helps to cover comprehensive expenses.
  • The amount of credit is based on a business’s needs.
  • Cost of availing packing credit is fixed and competitive.

It must be noted that the process of accessing funds through packing credit involves several steps and thorough verification criterias. Such a feature may not be of much help, when exporters are in immediate need of financing. As an alternative, exporters can use unpaid accounts receivable to access funds in a less cumbersome and hassle-free manner, by availing the invoice discounting services, extended by KredX. 

Significance Of Packing Credit:

Packing credit comes in handy for exporters and helps to streamline their supply chain. With the funds availed, businesses involved in exports can bridge the working capital gap, and more or less, shorten the operating cycle successfully.

Eligibility Criteria Of Packing Credit:

Businesses need to belong to either of the following categories to qualify for packing credit

  1. Start-ups
  2. Manufacturers
  3. Merchant exporters
  4. Existing customers of the bank

Notably, banking institutions are quite stringent when it comes to setting eligibility criteria against a business credit, to minimise the risk of default or late payments. Subsequently, some financial institutions may find it challenging to avail required credit, under this funding option. 

Nevertheless, such exporters can bridge their working capital gap by availing invoice discounting services from KredX - a leading integrated cash flow solution provider in India that helps businesses to access funds within 24 to 72 hours*. Our prompt fund disbursal, simple criteria, and repayment terms encourage businesses to avail working capital as and when required. 

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    Experts advice exporters and importers to go through packing credit’s terms of services and repayment clauses carefully. By doing so, they will be better positioned to gauge, whether the same is useful for them or not.

    FAQs on Packing Credit:

    A. Usually, exporters can receive pre-shipment credit through Packing Credit Loan in Foreign Currency or PCFC. EPC is Export Packing Credit in INR; the said facility helps to obtain raw material, process, and pack until final shipment.