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Pre Shipment Credit

Pre-shipment Finance is a loan provided by a finance provider to a seller of goods and or services for the sourcing, manufacture, or conversion of raw materials or semi-finished goods into finished goods and or services, which are then delivered to a buyer.

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Pre Shipment Credit

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  1. What is Pre Shipment Finance

  2. Pre-shipment Finance is a loan provided by a finance provider to a seller of goods and or services for the sourcing, manufacture, or conversion of raw materials or semi-finished goods into finished goods and or services, which are then delivered to a buyer. A purchase order from an acceptable buyer, a documentary or standby letter of what is pre shipment finance, or a Bank Payment Obligation, issued on behalf of the buyer, in favor of the seller is often a key ingredient in motivating the finance in addition to the ability of the seller to perform under the contract with the buyer.

  3. A Pre-shipment financing transaction involves two main parties: the seller and the finance provider. The seller and finance provider enter into a financing agreement detailing the terms of the financing structure. The finance provider may require a security interest in the receivables following shipment. The seller may grant inspection rights to the finance provider or its nominated agent for the period of manufacture or conversion. Pre-shipment financing is obtained by an exporter from his or her banker after the order has been confirmed and the letter of credit has been received from the importer. Once the bank extends credit, the exporter uses the funds to purchase raw materials to undertake production. Pre-shipment finance is also used for processing and packaging goods and transporting them to ports for shipment.

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