Imagine you're an exporter, shipping goods overseas. After shipping, you need financial support until you get paid by your buyer. This is where post-shipment credit comes into play, helping bridge the financial gap.
The Dance of Exchange Rates
When you sell your foreign currency bills (basically, the promise from your importer to pay) to your bank, they’ll purchase these bills at their current rate or a rate you both agreed on earlier. However, they’ll charge you interest upfront for the time it takes to process these bills.
Crystallisation: Turning Foreign Currency into Rupees
Bank’s Policy: Each bank has its own rules for converting the foreign currency owed to you into rupees (crystallising) if your importer doesn’t pay on time. These rules should be clear and accessible to you.
Exchange Rate Used: When converting to rupees, the bank will use its TT (Telegraphic Transfer) selling rate.
Amount Owed: You’ll owe the crystallised rupee amount plus any interest and fees, which means you have to pay this amount to the bank.
Interest: The bank will charge interest for any overdue period from the date of crystallisation until you pay the amount due.
Countries with Payment Issues: Even if you get local currency payment advice from a country with payment problems, the bank will still follow its crystallisation policy. [ Ensure the payment infrastructure of the country before signing any contract ]Interest Rates and Payments
RBI Guidelines: The interest rates for export transactions follow the guidelines set by the Reserve Bank of India (RBI).
Overdue Payments: If you don’t receive payment within the normal transit period (the average time for money to arrive), the bank will charge overdue interest.
Normal Transit Period: The Waiting Game
The normal transit period is the average time from when the bank buys your bill until the money is received. It’s different from the shipping time for your goods.
Here’s a breakdown:
Fixed Due Date Bills: If your bill has a fixed due date, the normal transit period doesn’t apply.
DP/At Sight Bills Not Under LC:
Foreign Currency Bills: 25 days
Rupee Bills Not Under LC: 20 days
Exceptional Situations: Banks can adjust these periods based on historical data for specific exporters, buyers, or shipping routes, but any changes need proper documentation. The maximum extended period is 90 days from shipment.
UN Guidelines Countries: Maximum of 120 days.
Rupee Bills Under LC:
Same Center Reimbursement: 3 days
Different Center in India: 7 days
Outside India: 20 days
Russia with RBI Reimbursement: 20 days TT Reimbursement Under LC:
Electronic Means: 5 days
Reimbursement After a Set Period: 5 days + the additional period.
Early Realization: Getting Paid Sooner
If you get paid earlier than expected, the bank will refund you the interest for the remaining period. However, there might be some additional costs for the early conversion, similar to those in forward contracts.
Changing Terms
If the usance (the time allowed for payment) of a bill changes, the bank will charge interest based on their guidelines and may also charge for any swap differences.
Export Bills for Collection
When you send export bills for collection (asking the bank to collect payment), the foreign currency will be converted to rupees at the prevailing rate once the money is in the bank’s Nostro account (an account held in a foreign country).
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