As an Exporter you may need export finance at every stages of business cycle as in following
- Pre-Shipment
- Post-Shipment
- Finance against collection of invoices and a multiple stages of working capital cycle.
- Finance required when export subsidies and benefits are removed
Why the Exporters need financial assistance:-
Before directly coming to source of finance we will understand first the why exactly exporters need the funds, there are the following reason to go for financial assistance:-
For Setting up new Export business:-
To build new export business, plan to acquire existing businesses like manufacturing units, renovate the business, modernize the units expand and Improve the plants so that international markets can be targeted.
For Working Capital:-
A big amount of money required for daily operations is known as working capital having cash in hands enables us to compete in the market.
There are following Types of Export Finance
Pre-Shipment Finance:-
Before the shipment of goods exporters needs funds for purchasing raw materials, processing of raw materials into the finished goods, packing of goods:-
Packing Credits:-
Exporters can avail the Pre-shipment Finance after receiving the export orders from the importers in the form of Packing Credits. Once the payment received from the importers this amount will be adjusted and loan will be closed against eachother.
Business Loan:-
To Purchase the raw materials to manufacture the export products required finance assistance can be taken by the help of loan facility.
Post-Shipment Finance:-
After the export importers raise an invoice and you will see through credit period until the payment not received. Finance assistance required to fulfil other orders and it can be given as following:-
- Bill discounts and Invoice factoring
- Export Finance against the collection of bills
- Supplier’s Credit & Buyer’s Credit
- Letter of Credit Discounting
How do Export Promotion Councils help with Export Finance?
The Government can also be an important source of finance through export benefits that exporters are earning by their performance.
Financial assistance by the Government includes various Incentive schemes like Merchandise Exports from India Scheme (MEIS) & Service Exports From India Scheme (SEIS) for goods and service exports respectively.
Under MEIS Scheme exporters can avail the benefits of 2%-5% on the eligible exports in the form of duty credit scrip which is transferable in nature and can be utilized in the payment of customs duties. Under SEIS Scheme service exporters can avail the benefits of 5% – 7% on the net foreign exchange earned
Advance authorization scheme waives of import duty if the inputs are used for the export products. There are four types by which application into DGFT can be done 1) On the basis of norms fixation 2) Self declaration Basis 3) Applicant specific prior fixation of norms 4) Self ratification basis. There are the norms fixed for few products from DGFT side on which basis license issued from DGFT. Duty Drawback Scheme (DBK) which refund duties and taxes paid for the inputs to required to manufacture the export products. Post export EPCG Scheme enables exporters to claim refund on duties paid to custom officials.
Latest Updates in Export Promotion Scheme:-
Recently the Indian Government extended it’s Foreign Trade Policy 2015-20 for more 1 year till 31st march 2021 due to Covid – 19 Outbreak. Under the extended policy the validity of all the Government incentives are also extended till March 2021. MEIS Scheme is also extended till 31st December. MEIS Scheme is not in complaint with World Trade Organization (WTO) so the Indian Government gave approval to the discontinuation of MEIS scheme.
On 13th March 2020 the Government approved the RoDTEP Scheme (Remission of Duties and taxes on export products) which will replace the existing MEIS Scheme and RoSCTL Scheme.
It may come in effect from January 2021 in a phased manner. The Government allocated Rs 50,000 to incentivize the exporters under the scheme. Rates are yet to be decided under the RoDTEP Scheme.
Who can provide the Export finance?
- There are the banks, non banking financial corporations and foreign trade specific lenders etc, offer the financial assistance.
- The Export-Import (Exim) Bank of India,
- Banks including nationalized banks, Pvt. Sector Banks, Foreign banks regional and rural banks provide the export finance it may be pre-shipment or post shipment finance.
Tips while initiating to take Financial assistance for Export:-
- Before entering into financial agreement keep eye on foreign exchange rates
- Financing comes with the cost- understand the impact of this cost on the business profit.
- Find appropriate and trusted firm for outsourcing collection against invoice.
- Understand the repayment capacity of yours then only apply for the finance.
- Check all the terms & conditions before applying for the Government incentives which are subjected to various terms and conditions.
Set the feasible deadline to complete orders.
