Pre-Shipment vs Post-Shipment Finance: Key Differences & How to Choose
Pre-Shipment Finance is the loan or credit you get before goods leave the factory; Post-Shipment Finance is the cash advance you receive after the goods are shipped but before the buyer pays. One funds production, the other bridges the receivables gap.
Founders often Google both terms in the same breath because a single export order triggers two cash crunches: buying raw materials today and waiting 60 days for the invoice to clear. Banks bundle the offers, so the names blur and people pick the wrong box on the form.
Key Differences
Pre-Shipment covers raw materials, labour, and packaging until goods are on the vessel; risk sits with the exporter and collateral is the purchase order. Post-Shipment kicks in once the bill of lading is issued, discounting the invoice; risk shifts toward buyer default and collateral is the receivable itself.
Which One Should You Choose?
If your factory is maxed out and suppliers demand cash, take Pre-Shipment. If the goods are sailing but payroll is due, switch to Post-Shipment. Many exporters layer both, using the second to pay off the first and pocket the margin.
Examples and Daily Life
A Kenyan coffee roaster secures $50k Pre-Shipment to buy beans, roasts, packs, and ships. Once the container leaves Mombasa, she switches to a Post-Shipment facility, gets 90 % of the $100k invoice immediately, repays the first loan, and keeps $40k working capital.
Can I use both facilities for the same order?
Yes. Banks often structure them as a continuous line: Pre-Shipment converts into Post-Shipment automatically.
Which option is cheaper?
Pre-Shipment usually carries higher interest because production risk is greater; Post-Shipment rates drop once goods are in transit and insured.
Do I need insurance for either?
Pre-Shipment may require production or political-risk cover; Post-Shipment typically needs trade-credit insurance tied to the buyer.