The export business is an extremely capital-intensive enterprise, with many operational overheads. Processes can be long-drawn and involve financing at every stage. The post-shipment phase also requires a lot of financial negotiations and includes several banking activities.
An exporter ships the merchandise through a clearing and forwarding agent, commonly known as a C&F agent. Once the export of the goods is completed through the C&F agent, the post-shipment activities commence. These post-shipment activities are conducted in several stages:
Stage 1: Submission of all documents by the C&F agent to the exporter
As soon as the shipment of the goods takes place, the C&F agent has to submit the following documents to the exporter:
- The original Letter of Credit (LC), export order, or contract
- Copies of Bill of Lading, both negotiable and non-negotiable
- Duplicate copy of the ARE-I form (Application for Removal of Excisable Goods for Export by Air/Sea/Post/Land).
- Export Promotion copy of the Shipping Bill
- Drawback copy of the Shipping Bill
Stage 2: Sending information on the shipment of goods to the importer
The exporter must provide the importer with all details of the shipment of the products so that it will be convenient for the latter to receive the goods promptly on arrival.
The details to be conveyed to the importer should generally be the date of shipment or transport, name of the vessel/flight number, vehicle details, or post details, and the name of the seaport or airport or border post, depending on the method of export.
The exporter should also send the importer a copy of the non-negotiable Bill of Lading.
Stage 3: Submission of documents to the exporter’s bank for receiving payment
The next step for the exporter is to submit the relevant documents to the bank where they hold an account. This process is initiated to receive the payment from the importer’s bank account.
The documents required to be submitted to the bank for receiving the payment are often referred to as the ‘Negotiable Set of Documents’. The process initiated by the exporter’s bank with the importer’s bank after receiving the Negotiable Set of Documents is commonly called the ‘Negotiation of the Documents’.
The following documents are generally needed to be submitted to the exporter’s bank for initiating the process of payment realization:
- Commercial Invoice
- Bill of Lading
- Consular Invoice
- Certificate of Origin
- Dock Receipt or Warehouse Receipt or Airway Bill or Transport Bill
- Inspection Certificate
- Destination Statement
- Insurance Certificate
- Export Packing List
- IEC Certificate
Stage 4: Submission of covering letter
For the convenience of the banking authorities, all the documents mentioned above should be submitted to the exporter’s bank with a covering letter that serializes the documents enclosed and specifies the purpose of their submission. This will significantly facilitate the process in favor of the exporter.
Stage 5: Dispatch of documents by exporter’s bank to importer’s bank
As soon as the exporter submits the Negotiable Set of Documents to the bank, the process of Negotiation of the Documents commences.
The bank will first scrutinize all the documents submitted by the exporter. If the bank finds all the documents in order, it initiates the process of Negotiation of the Documents with the importer’s bank. This process will be conducted as per the terms and conditions of the LC of the importer.
The bank then issues a bank certificate and attested copy of the commercial invoice to the exporter.
Stage 6: Generation of Bill of Exchange
A Bill of Exchange is generated after consideration of the documents mentioned above, and is commonly known as the ‘Documentary Bill of Exchange’. This Bill of Exchange can be of two types:
Sight draft: The exporter instructs the bank to hand over the entire relevant documents only after receipt of payment from the importer.
Usance draft: The exporter instructs the bank to hand over the entire relevant documents to the importer after the acceptance of the Bill of Exchange.
Stage 7: Furnishing of indemnity bond
An exporter can receive payment immediately from the bank by furnishing an indemnity bond. As per the bond, the exporter has to give an undertaking to the bank that the said exporter will indemnify the bank in case of non-receipt of payment from the importer’s bank, along with interest imposable for such default.
Stage 8: Realisation of payment
After the importer’s bank receives the documentary Bill of Exchange, it releases the funds for payment. Payment is released in both cases of sight draft or usance draft. The exporter’s bank receives the payment from the importer’s bank, and the account of the exporter is credited.
Stage 9: Submission of Exchange Control Declaration (GR) form
After the receipt of the payment by the exporter, the GR form has to be submitted to the Reserve Bank of India (RBI). The exporter’s bank discloses the relevant facts in the form, about the transaction of export just concluded by the exporter, and submits it to RBI. The RBI verifies the disclosed facts in the form, and if the facts are found to be correct, it closes the export transaction as completed.
Stage 10: Incentive for export
If the exporter is eligible to receive an incentive for the export made, they have to submit a claim in this regard to the appropriate authority. The application for such an incentive must be accompanied by the relevant documents and the bank certificate.
This concludes the various stages of post-shipment banking activities in the export business.