Export Packing Credit: Eligibility, Margin, Duration, and Repayment Options

Exporters often face a time gap between receiving an export order and getting paid by the overseas buyer. During this period, working capital needs rise to cover raw materials, labour, packaging, and transport. Export Packing Credit (EPC) helps bridge this gap by providing short-term finance before shipment. It allows exporters to focus on production and delivery without straining business cash flow.

<H2> What is Export Packing Credit?

Export Packing Credit is a pre-shipment finance facility offered by banks to exporters against confirmed export orders or letters of credit. It provides funds to cover the cost of procuring, manufacturing, processing, or packaging goods meant for export.

This credit is usually provided in Indian Rupees or foreign currency, depending on the exporter’s preference and the bank’s terms. The facility remains valid until the goods are shipped and the export bills are submitted for payment or discounting.

<H2> How Export Packing Credit Works

Once an exporter receives a confirmed order or a letter of credit, they can approach their business bank account provider to apply for EPC. After approval, the bank credits the loan amount to the exporter’s account, which can then be used to manage pre-shipment expenses.

When the shipment is completed and payment is received through SWIFT bank transfer or another approved channel, the export packing credit is adjusted or liquidated.

<h2> Eligibility for Export Packing Credit

Banks usually extend EPC to businesses that have a proven export track record or are new exporters with valid export orders. The basic eligibility criteria include:

A valid Import Export Code (IEC) issued by the Directorate General of Foreign Trade (DGFT).
A confirmed export order or an irrevocable letter of credit.
A satisfactory credit history and relationship with the bank.
A functioning business bank account with the financing bank.

For first-time exporters, banks may seek additional documentation such as financial statements or proof of production capacity.

<h2> Margin Requirements

The margin in Export Packing Credit refers to the percentage of the order value that the exporter contributes from their own funds. This ensures that exporters share part of the risk and maintain a stake in the transaction.

Banks determine the margin based on the exporter’s creditworthiness, past performance, and the nature of the export goods. Typically, margins range between 10% and 25% of the order value.

For example, if an exporter secures an order worth INR 10 lakh and the bank stipulates a 20% margin, the exporter must invest INR 2 lakh, while the remaining INR 8 lakh can be financed through EPC.

Duration and Tenor of Export Packing Credit

The tenor or duration of EPC depends on the production cycle and shipment timeline. Usually, the facility is granted for up to 180 days. However, banks may extend the period under genuine circumstances, such as shipment delays beyond the exporter’s control.

The bank charges interest only for the period the funds are used. If the exporter liquidates the loan early, the interest is calculated for the actual number of days the funds were utilized.

Repayment and Liquidation Options

Repayment of Export Packing Credit is known as liquidation. It occurs when the exporter receives payment for the shipment and uses those proceeds to settle the loan. Liquidation can happen in several ways:

By conversion to post-shipment credit: Once goods are shipped, the EPC can be converted to post-shipment credit until payment is received from the buyer.
By export bill purchase or discounting: The bank may purchase or discount the export bill, using those proceeds to liquidate the pre-shipment credit.
By SWIFT bank transfer: When the overseas buyer remits funds via SWIFT, the proceeds are used to repay the outstanding EPC amount.
By own funds: Exporters may choose to repay using their own funds if payment is delayed or shipment is cancelled.

Banks closely monitor the timely liquidation of EPC to ensure compliance with foreign exchange and export financing regulations.

Interest Rates and Charges

Interest rates on Export Packing Credit are usually lower than standard business loans since EPC falls under priority sector lending for exports. The rate is linked to benchmarks such as the Repo Linked Lending Rate (RLLR) for rupee loans or LIBOR/SOFR for foreign currency loans.

Banks may also charge processing fees, renewal charges, or documentation costs, which vary based on the exporter’s profile and relationship with the bank.

Benefits of Export Packing Credit

Export Packing Credit provides several operational and financial advantages for exporters, including:

Improved cash flow: Immediate access to working capital helps maintain production schedules without financial stress.
Competitive pricing: Lower interest rates reduce financing costs, improving profit margins.
Currency flexibility: Exporters can choose between rupee and foreign currency loans to manage exchange rate risks.
Ease of repayment: EPC can be liquidated smoothly through export proceeds or bank facilities such as bill discounting.

Practical Example

Consider a textile exporter who secures a bulk order from a European buyer. The production requires upfront payments to suppliers and workers. The exporter approaches their bank for an EPC of INR 20 lakh, with a 15% margin. The bank approves the facility for 120 days.

After shipment, the buyer remits payment through a SWIFT bank transfer, which the bank uses to liquidate the EPC. This arrangement ensures continuous cash flow and timely delivery without straining the exporter’s finances.

Conclusion

Export Packing Credit is an essential tool for exporters seeking short-term working capital support before shipment. It helps maintain business continuity, ensures timely order fulfilment, and supports growth in global trade.

By maintaining a strong relationship with a reliable bank and managing a compliant business bank account, exporters can access EPC efficiently and strengthen their financial foundation for future opportunities.