Pre-shipment finance (packing credit)
What is pre-shipment finance, and how does the bank get repaid?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Pre-shipment finance, often called packing credit, is a short-term loan that funds an exporter to buy materials and make or pack goods for a confirmed export order or letter of credit, before anything has shipped. It is repaid from the export proceeds, often by rolling into post-shipment finance once the shipping documents are presented. The lender carries the exporter's performance risk as well as the buyer's credit risk: if the goods are not made or shipped, there are no documents to present and no receivable to collect. In some markets an export credit agency guarantees part of such loans.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Borrowing base
- Dilution (receivables)
- Advance rate
- Eligible receivables
- Concentration limit
- Recourse (receivables finance)
- Invoice discounting
- Trade credit insurance
- Performance bond
- Standby letter of credit (SBLC)
- Documentary collection
- Letter of credit (LC)
- Sub-limit
- Open account
- Discrepancy (letter of credit)
- Documents against acceptance (D/A)
- Early settlement discount
- Aged debtors report
- Collection account
- Availability (borrowing base)
- Usance letter of credit
- Cross-ageing
- Trust receipt
- On-demand guarantee
- Virtual accounts
- Borrowing base certificate
- Selective invoice finance (spot factoring)
- Contra debtor (contra)
- Progress claim (payment claim)
- Supply chain finance (reverse factoring)
- Dynamic discounting
- Slow-moving stock
- Unapplied cash (unallocated receipts)
- Banker's acceptance
- Confirmed letter of credit
- Red clause letter of credit
- Back-to-back letter of credit
- Transferable letter of credit
- Shipping guarantee
- Bill of lading (B/L)
- Incoterms
- Post-shipment finance
- Forfaiting
- Aval
- Export credit agency cover (ECA cover)
- Advance payment guarantee (APG)
- Bid bond (tender guarantee)
- Counter-guarantee
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