Financing Trade: Pre-Export Finance vs. Post-Shipment Finance 🚢💰
For companies engaged in international trade, the biggest challenge is often not finding a buyer, but funding the operational gap between order and payment. Consequently, businesses must choose the right financing tool to manage cash flow effectively. Pre-Export Finance and post-shipment finance represent the two primary options. At Crestmont Group, we recognize that selecting the optimal timing—before or after shipment—is a strategic decision. We help clients evaluate these options to ensure seamless and efficient trade cycles.
Understanding Pre-Export Finance
Pre-Exports Finance provides working capital to a seller before they ship the goods. Essentially, the loan is advanced against a confirmed sales order or a Letter of Credit (LC). Therefore, the funding covers essential operational expenses. These expenses include purchasing raw materials, manufacturing costs, or securing the agricultural commodities needed to fulfill the contract.
- Benefit: Pre-Export Finance accelerates the entire production cycle. It allows the seller to fund large orders they couldn’t otherwise afford.
- Risk: The lender assumes the performance risk. Specifically, the seller might fail to produce and ship the goods.
We utilize Pre-Exports Finance as a core element of our structured trade finance solutions. It transforms the potential of a future sale into immediate, usable liquidity.
Post-Shipment Finance: Capitalizing on Receivables
Post-shipment finance, in contrast, provides financing after the seller ships the goods and presents the necessary documents (like the Bill of Lading) to the bank. For instance, two common forms are receivables discounting and forfaiting. The seller receives cash immediately, even though the buyer’s payment might not be due for 90 days.
- Benefit: This option eliminates the waiting period for payment. Consequently, it cleans up the seller’s balance sheet.
- Risk: The risk shifts primarily to buyer default. This is because the performance (shipping the goods) is complete.
This strategy is often used in Open Account Trading relationships. It gives the seller cash flow while offering the buyer deferred payment terms.
Choosing the Right Tool: Pre-Export Finance vs. Post-Shipment
The decision between the two hinges on the transaction’s stage and the parties’ relationship. Pre-Export Finance is typically required for large, custom manufacturing orders where the seller needs capital for upfront costs. Conversely, post-shipment finance is better for transactions where production costs are low, but the seller wants faster access to receivables.
| Feature | Pre-Export Finance | Post-Shipment Finance |
| Timing | Before production/shipment | After shipment/documentation |
| Collateral | Sales contract or confirmed LC | Invoice/Receivable |
| Key Risk | Seller non-performance (Operational Risk) | Buyer default (Credit Risk) |
Ultimately, securing Pre-Export Finance requires meticulous documentation and strong collateral. This assures the lender of the contract’s viability. You can explore the legal differences between these funding stages in more detail from the International Chamber of Commerce (ICC) trade finance rules.
Ready to determine the optimal financing strategy for your next international order? Contact Crestmont Group today to see how our expertise in Pre-Export Finance can accelerate your business cycle.
