Packing credit

Packing credit is actually a loan gave to exporters or sellers to found the goods’ before delivery. The bank will make the bankroll accessible to a letter of credit exhaled favoring the seller and a verified order for selling the goods or services. The advance is suplied to acquisition feedstocks, process, manufacture, pack, market and transport the required goods and services. Sometimes, the packing credit is likewise used for funding the working capital and meet the necessitatuon of earnings, travel expediture, utility payments for listed companies as exporters.

Basically, importers are not prepared to advance charges to exporters as it is not safe and full of hazard for them. In such scenarios, the ability of export packing credit advantages the exporter's supply concatenation and supplies them bankrollss to move closer till the ultimate payment. The bank emitting the packing credit will normally increase the partial or full balance of bill, depending on the adopted risk. The packing credit is particularly very cost-effective for exporters who export goods abroad as it has a more elastic payback program than the typical bank loans. The loan can be provided also in the exporter's currency or different effortlessly convertible currency each other determined by both the exporter and the giving on loan bank.

Packing credit is an substantial pre-shipment bankrolls accessible to the exporters. Rather than empting their own liquid reserves, the banks and other lending agency give them with an inexpensive and expedient way to help their delivery chains (Borad S., 2018).

Adwantages of packing credit

The packing credit has the next five advantges:

• Self-Liquidating
• Credit to purchase goods
• Lower interest rates
• Covers manufacturing costs
• Flexible credit conditions

Self-Liquidating

The Self-liquidating feature is the most important advantage of packing credit. The loan can be liquidated in exchange for the ultimate payment of the goods and services. This is very favorable to small exporters who are not able to have the needed money. This likewise displaces a lot of risk from the funding as the bank has the asseveration of payment before the exporter obtains the incomes.

Credit to purchase goods

Packing credit supplies capital to obtain any goods to export. At times cost of obtaining the goods needed to send outbalaces budget, in that way a packing credit proposes the security in case of need (P. Rajib, 2007).

Lower interest rates

A opposed to a bank loan with typical overdraft facility, packing credit proposes lower interest rates to exporters. Interest rates diverge in accordance with the nature of business, area and the borrowed amount, but packing credit is usually lower than other typical bank loans. The main reason giving packing credit, was to supply working capital to exporters at an internationally concordant rate (G. Sanati and A. Bhandari, 2014)

Covers manufacturing costs

For exporters who have item that must be produced out of house, the packing credit coats the related costs, such as raw materials and wages. Furniture and different goods not made in the same state as the exporter have to be sended to the exporter, which is likewise coated by most packing credit commitments.

Flexible credit conditions

Therefor packing credit is purchased modelled on the wants of business, the conditions are normally flexible, depending on business. Payment scheme and overdrafts are frequently more flexible to permit the exporter to pay off the loan when he obtains payment for the shipment. In the process of the transitional period, all funding for the exporter keeps on (Palmer A., 2017).

Examples of Packing credit

• Packing credit is commonly used by exporters to pay the cost of packing and shipping goods to a foreign market. It is a short-term loan provided by a financial institution to cover the cost of exporting goods. The loan is usually repaid within a few weeks or months of the goods being shipped.
• Packing credit can also be used to finance the purchase of materials and supplies needed to manufacture goods. This type of loan is typically secured against the value of the goods being produced. The loan is then repaid as soon as the goods are sold to the customer.
• Packing credit can also be used by importers to purchase goods from overseas suppliers. In this case, the loan is secured against the value of the goods being imported. The loan is usually repaid when the goods are sold to the customer.

Advantages of Packing credit

Packing credit is a loan generally provided by the banks to exporters or sellers to finance the goods before delivery. It has several advantages, such as:

• It provides a flexible source of finance to cover the cost of production and export of goods.
• It offers the exporter an opportunity to purchase the raw materials, process, manufacture, pack, and market the goods.
• It helps to manage the cash flow of the exporter.
• It reduces the need to borrow from other sources.
• It allows the exporter to pay the suppliers in time and improve the working capital management.
• It helps in reducing the costs of export by providing the necessary finance.
• It helps in reducing the risk of non-payment from the buyer.

Limitations of Packing credit

Packing Credit has some limitations, which need to be considered before availing it. These are:

• It is not available to all types of businesses, but only to exporters and sellers.
• It is only released when a letter of credit is issued in favor of the seller, and the order is verified.
• The amount of packing credit provided is usually limited to the value of the order.
• It is usually a short term loan, and needs to be repaid within 90 days.
• It does not cover expenses related to advertisement or marketing of the product.
• The rate of interest for packing credit is usually higher than for other loans.

Other approaches related to Packing credit

Packing credit is a loan provided to exporters or merchants to finance the goods before delivery. However, there are several other approaches related to it, such as:

• Drawing Power Limit: This means the limit given by the bank for the import of goods. The limit is given based on the security provided and the creditworthiness of the borrower.
• Export Packing Credit: This type of packing credit is provided to cover the cost of packaging, processing, and shipping of goods.
• Pre-shipment Credit: This type of packing credit is provided to cover the cost of production, manufacturing, and other related activities before the delivery of goods.
• Pre-dispatch Credit: This form of packing credit is provided to cover the cost of the goods before they are dispatched.

In summary, packing credit is a loan used to finance the goods before delivery. There are several other approaches related to it, such as Drawing Power Limit, Export Packing Credit, Pre-shipment Credit, and Pre-dispatch Credit.

Packing credit — recommended articles

Evergreen Loan — Bills Payable — Customer deposits — Lombard loan — Net purchases — Interim financing — In-House Financing — Trade receivables — Staged payments

References

• Borad S., (September, 2018) Packing Credit.
• Chauffour J., Saborowski C., Soylemezoglu A., 2010 Trade Finance in Crisis Should Developing Countries Establish Export Credit Agencies?, no. 5166, (11-13)
• Palmer A.,(January, 2017) Features of a Packing Credit.
• Rajib P., (2007) Financing of International Trade International Finance, Module-32, (8-9).
• Sanati G., Bhandari A., (2014)Packing credit as a substitute to short-term bank loan Analysis of ndian export sectors, (2-3)

Author: Natalia Bielak