subject: Importance Of Packing Credit [print this page] What exactly is Packing Credit? What exactly is Packing Credit?
Packing credit can be defined as a granted loan or advance or any amount of credit provided to an exporter by a bank so as to finance the purchase, dispensation, manufacturing or packing of goods before delivery. The packing credit is provided by the bank on the base of a letter of credit opened in the favor of the exporter himself or any other person, which is issued by an overseas buyer or an inveterate and final order for exporting goods from the manufacturing country.
Packing credit is also, sometimes, referred as pre-shipment credit and includes a part of export credit. Generally, packing credit is offered by commercial banks. However, before granting any kind of advances, loans, or credits the bank takes into account some factors like:
-Integrity, honesty, and capital of the borrower.
-The interest margin.
-Security proffered.
-Experience of the exporter in the concerned field.
-The banks experience with reference to the exporters surety of his name not existing in the caution list of the Reserve Bank.
This security is, however, provided in different forms like a letter of credit, an appropriate policy issued by the ECGS, a personal bond if the banker already knows the party, or a confirmed order as confirming you have received the order.
The main costs covered by the packing credit offered to an exporter include:
-Any kind of packing together with the special kinds of packing required for export.
-Purchasing and production costs.
-Internal transport costs.
-Export duty to taxation.
-Stowage and insurance charges if the contract is either a c.i.f contract or a c&f contract.
-Charges for port, customs, and shipping agents.
-The cost for special inspection and tests required by the importer.
Why choose this form of finance?
Well, choosing packing credit as a helping hand helps you gain the working capital required to complete the orders in addition to covering all pre- shipment costs. Moreover, it is also available at lesser interest rates than the customary overdrafts. Other benefits of packing credit are supported by the following points:
-The credit helps you cover production costs like raw materials and wages for employees.
-Packing credit provides you with an extended and flexible finance period most commonly 90 days prior to the shipment date.
-You can structure the credit terms as per the suitability of your business.
-It becomes easier to attract new business by proffering more viable terms to trading partners.
-Packing credit avails for you the cash flow during the process of packing goods and while waiting for shipment.
