Post-shipment finance
Post-shipment finance
What Is Post-Shipment Finance?
Post-shipment finance is a type of funding that companies use after they have shipped goods to their buyers. It is designed to help businesses with their cash flow between the time an order is completed and the moment the payment is received. This financing method ensures that companies have the funds necessary to continue their operations without interruption.
Understanding the Role of Factoring
In the context of Financial Factoring, post-shipment finance plays a crucial role. Factoring is a financial transaction where a business sells its invoices to a third party, known as a factor, at a discount. When post-shipment finance comes into play, the factor advances a percentage of the value of the shipped goods' invoices, providing the business with immediate working capital.
Benefits of Post-Shipment Finance
Access to post-shipment finance offers a range of benefits, such as improving cash flow, allowing for quicker reinvestment in the business, and the ability to fulfill new orders without waiting for previous payments. It also helps a business manage the gap between expenditure on production and the incoming revenue from sales. This can be particularly useful for businesses that have long payment terms with their customers or operate in industries where delays in payment are common.
How Does Post-Shipment Finance Work?
The process begins once the seller ships the goods and issues an invoice to the buyer. The seller then approaches the factor with the invoice for post-shipment finance. The factor assesses the risk, including the creditworthiness of the buyer, and if it agrees to proceed, it will advance a portion of the invoice's value to the seller. The amount advanced can vary but typically ranges between 70-90% of the invoice amount. Once the buyer pays the invoice, the factor releases the remaining balance to the seller, minus a service fee.
Eligibility and Requirements
To be eligible for post-shipment finance, a business must have a clear record of completed shipments and invoices. The factor will need documentation such as the shipping documents, the commercial invoice and possibly a proof of delivery. The creditworthiness of the buyers is also a significant consideration since it affects the risk for the factor.
Choosing the Right Provider
When considering post-shipment finance, it is essential to choose the right factor or financial provider. Businesses should look for a factor that offers competitive rates, understands their specific industry, and provides a transparent process with no hidden fees. A reliable relationship can offer peace of mind and financial stability for businesses navigating the gap between shipment and payment.
