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The working capital gap in export trade does not begin when you ship. It begins the moment you accept an order. Raw materials need buying. Production needs paying for. Packaging, storage, and inspection costs accumulate before a single container has moved. Pre-shipment finance exists to fund that gap, from confirmed order to shipped goods, so your cash position is not the constraint that determines whether you can execute the trade.
Who this is for: Exporters, commodity traders, manufacturers, and procurement intermediaries who receive purchase orders or letters of credit from buyers but need working capital before goods can be shipped. If your supplier or production costs fall due before your buyer pays you, this article covers your options.
Pre-shipment finance is not a single product. It is a category of working capital funding that covers the period between the seller accepting a confirmed order and the seller shipping the goods. Within that window, costs can be substantial.
For a commodity trader buying physical goods from a supplier, the pre-shipment phase covers the purchase price payable to the supplier, the cost of inspection at origin, insurance prior to and during loading, storage at the port of origin, and any freight or forwarding costs incurred before the bill of lading is issued. None of these costs can be recovered from the buyer until after shipment, and in most trade structures, not until the buyer's payment terms have run.
For a manufacturer or processor, the pre-shipment phase covers raw material purchases, labour, energy, processing costs, and packaging. The timeline between receiving an order and having finished goods ready to ship can run from weeks to months depending on the product.
In both cases, the seller is funding a production or procurement cycle from their own working capital unless a pre-shipment facility is in place. That is the problem the facility solves.
Consider a commodity trader who receives a confirmed purchase order from a European buyer for 5,000 metric tonnes of agricultural product, payable 60 days after bill of lading date. The supplier in the origin country requires payment at the time of loading or against a letter of credit. The trader must pay the supplier before or at shipment. The buyer pays 60 days after. That gap, from supplier payment to buyer settlement, is where the working capital pressure sits.
Without a pre-shipment facility, the trader either needs to fund the supplier payment from their own cash reserves or negotiate different payment terms with one party, both of which carry cost or competitive risk. With a pre-shipment facility backed by the confirmed purchase order, the lender advances the funds needed to pay the supplier. The facility is repaid from buyer proceeds when they arrive 60 days later.
Common confusion: Pre-shipment finance and prepayment finance are related but different. Prepayment finance typically refers to a buyer or lender advancing funds to a producer against future deliveries, often over a longer horizon and secured against an offtake contract. Pre-shipment finance is shorter-cycle working capital for the seller, tied to a specific order and repaid from the proceeds of that specific shipment. For more on prepayment structures, see our prepayment finance page.
The structure that applies to your trade depends on what the buyer has provided as the basis for the order, whether a letter of credit or a purchase contract, and on what security the lender can take over the goods and the receivables that arise from shipment.
| Structure | How It Works | Best Suited For |
|---|---|---|
| LC-Backed Packing Credit | The buyer issues a letter of credit in the seller's favour. The seller uses the LC as the primary repayment instrument to access a pre-shipment working capital advance from a bank or lender. Funds are advanced to cover production or procurement costs. The LC proceeds retire the facility at or after shipment. | Exporters and traders who have secured an LC from a creditworthy buyer. The LC provides a defined, bank-backed repayment source that significantly reduces lender risk and allows higher advance rates and lower pricing. |
| Purchase Order Finance | The lender advances against a confirmed, signed purchase order from a creditworthy buyer without an LC in place. The lender takes an assignment of the purchase contract and the receivables arising from it. Repayment comes from buyer proceeds routed through a designated account. | Traders selling to established buyers on open account terms where the buyer's creditworthiness can be independently verified. More common in repeat trading relationships where the buyer profile is known and consistent. |
| Inventory Finance Against Goods in Production | The lender takes a security interest in work-in-progress or finished goods held in a controlled location. Advances are made in stages as production milestones are reached, with the lender or its agent monitoring the goods throughout. Repayment is triggered by sale and shipment. | Manufacturers and processors with longer production cycles where goods can be used as collateral progressively. Also relevant for commodity traders holding physical inventory at a warehouse pending confirmed sale. |
| Revolving Pre-Shipment Facility | A committed line of credit that can be drawn and repaid on a rolling basis across multiple shipments. Each drawdown is linked to a specific order or shipment cycle. As one trade is repaid, the line is available for the next. This is operationally more efficient for high-volume traders than applying for a new facility on each transaction. | Active exporters and trading companies with regular, recurring order flow from a consistent buyer base. Provides committed liquidity without the overhead of transactional financing on each deal. |
Pre-shipment facilities are assessed on two levels simultaneously. The lender evaluates the underlying transaction, the quality of the order or LC and the repayment mechanism, and the seller's own ability to execute and deliver.
A confirmed, irrevocable letter of credit from a reputable issuing bank provides the clearest repayment pathway and attracts the most favourable terms. A signed purchase contract from a creditworthy buyer on open account terms is workable but requires more diligence on buyer creditworthiness. Verbal or informal orders are not fundable.
The lender is advancing funds before the goods exist or have been shipped. They need confidence that the seller can actually produce or procure and ship the goods within the required timeline. Evidence of prior similar transactions, supplier relationships, and logistics arrangements all reduce execution risk in the lender's assessment.
How does the lender get their money back? Buyer proceeds need to flow through a defined, controllable channel. An assigned receivable, a pledged account, or an LC maturing into the lender's hands all provide clear repayment. Ambiguity in the repayment chain is a significant underwriting concern at the pre-shipment stage because goods have not yet been shipped and no invoice exists yet.
The lender may take a security interest in the goods being financed. Easily saleable, standardised commodities with liquid secondary markets provide stronger collateral than bespoke, perishable, or highly specialised goods. The advance rate offered against the goods will reflect their marketability if the seller defaults before shipment.
Pre-shipment insurance covering the goods while in production or storage, and marine cargo insurance once goods are in transit, protect both the seller and the lender against physical loss. Most lenders require insurance to be in place and the policy to name them as loss payee or additional insured before funds are advanced.
Full know-your-customer checks on the seller entity, its beneficial owners, and the buyer are standard. Sanctions screening of all parties, the origin country, and the goods category is conducted before approval. Any complexity in corporate structure or counterparty profile increases the due diligence timeline and should be anticipated in the application process.
Both pre-shipment and post-shipment finance address working capital gaps in the same trade cycle. They are not alternatives to each other. Many active exporters use both, with the pre-shipment facility covering procurement and production costs and the post-shipment facility covering the receivable period after goods have been shipped and documented.
| Stage | Pre-Shipment Finance | Post-Shipment Finance |
|---|---|---|
| When it applies | After order confirmed, before goods shipped | After goods shipped and documents raised, before buyer pays |
| What it funds | Raw materials, production, procurement, packaging, inspection, storage prior to shipment | The receivable period while the seller waits for buyer payment under the invoice or LC |
| Repayment source | Buyer payment after shipment or LC proceeds at maturity | Buyer payment at invoice maturity or LC payment at due date |
| Primary collateral | The purchase order or LC, and the goods in production or storage | The shipped goods, transport documents, and the trade receivable or accepted draft |
| Key risk for lender | Seller fails to produce or ship the goods; goods do not match order specification | Buyer fails to pay; documents are discrepant and LC cannot be drawn |
The completeness and quality of your application package determines how fast the process moves and what terms you receive. Lenders cannot advance against an order they cannot verify or a repayment they cannot trace. Preparing the following before approaching a lender removes the most common sources of delay.
Timing matters: Pre-shipment finance applications should be submitted as early in the order cycle as possible. Approaching a lender two days before your supplier requires payment leaves no time for due diligence and almost guarantees either a delay or a declined application. The ideal timing is immediately after the purchase order or LC is confirmed, before procurement has started.
Pre-shipment facilities are priced based on the risk the lender is taking and the quality of the repayment mechanism in place. Several factors consistently influence the pricing outcome.
We work with exporters and commodity traders who need to fund procurement, production, or supplier payment before goods are ready to ship. If your purchase order or letter of credit is confirmed and your supplier timeline is defined, we can review your transaction and advise on structure, advance rates, and lender options. Submit your deal and we will revert with next steps within one business day.
Working capital funding provided to a seller or exporter between the point of receiving a confirmed order and the point of shipping goods. It covers costs including raw material procurement, production, packaging, inspection, and storage that fall due before the goods leave and before any invoice can be raised against the buyer.
Pre-shipment finance covers costs before goods are shipped, funded against the confirmed order or LC. Post-shipment finance covers the receivable period after goods have been shipped and documents raised, but before the buyer has paid. The two products address different stages of the same export cycle and are often used together.
At minimum: a signed purchase order or confirmed LC, a proforma or commercial invoice, details of the goods and production timeline, evidence of the seller's ability to fulfil the order, insurance arrangements, and full KYC documentation for the applicant and its principals.
Repayment comes from buyer proceeds after shipment and delivery. In most structures, the buyer's payment flows through a designated account pledged to or controlled by the lender, which is used to retire the pre-shipment facility before any balance is released to the seller.
Most facilities run for 30 to 90 days, aligned to the production and export cycle. Longer tenors of up to 180 days can apply for trades with extended manufacturing lead times or seasonal agricultural production. The facility is expected to be retired as soon as buyer proceeds are received.
Yes. Purchase order finance against a signed contract from a creditworthy buyer on open account terms is available. The documentation and security requirements are higher than for an LC-backed structure, and pricing will typically be less favourable. Both routes are available and the right choice depends on your buyer's payment method and credit profile.
Disclaimer: This content is informational and does not constitute legal, financial, or investment advice. Pre-shipment finance structures, lender requirements, advance rates, and eligibility criteria vary by transaction, commodity type, buyer profile, and jurisdiction. Obtain independent legal and financial review before committing to any financing arrangement.
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