Export Factoring vs Packing Credit: A Practical Comparison for Indian Exporters
Packing credit is pre-shipment finance, a bank loan to fund buying, processing, manufacturing or packing goods before they ship, while export factoring is post-shipment finance that turns an invoice you have already raised into an upfront advance. They sit at different points in the same order, so for many exporters the question is "and", not "or".
Key facts
- RBI's 2015 Master Circular on export credit described pre-shipment (packing) credit as bank credit to an exporter for financing the purchase, processing, manufacturing or packing of goods before shipment.
- Post-shipment credit was defined there as bank credit to an exporter from the date of extending credit after shipment.
- Packing credit is typically sized on your own credit standing and banking relationship; factoring is sized on the buyer and the invoice.
- The same circular noted that packing credit may be liquidated out of the proceeds of bills drawn for the exported goods, which converts pre-shipment credit into post-shipment credit. RBI has since consolidated its export credit instructions into later Directions, so confirm the current text and your bank's terms.
- Factoring an invoice can change what counts in a receivables-based bank borrowing base, so tell your bank.
What does packing credit actually fund?
Packing credit, also called pre-shipment finance, is a bank facility granted to an exporter before goods are shipped. It funds the working-capital gap between winning an order and shipping it: raw materials, labour and other production costs. It is typically supported by evidence of an export order, such as a confirmed order or a letter of credit. Once the goods ship, the facility is adjusted in line with the bank's terms; RBI's 2015 circular noted it may be liquidated out of the proceeds of export bills.
What does export factoring fund, and how is that different?
Factoring starts where packing credit ends. Once an invoice exists against a shipped order, factoring converts it into an advance instead of waiting for the buyer's payment date. The difference is the stage and the security: packing credit finances the period before shipment against an order and your own credit; factoring finances the period after shipment against an actual invoice and the buyer's credit. The full process is in export factoring in India.
Can I use both on the same order?
Many exporters do, as sequential tools for the same order: packing credit to produce and ship, factoring to turn the invoice into cash. How a particular bank adjusts a packing credit when export proceeds, or a factoring advance, arrive is a matter for that bank's terms and your finance provider's terms. Do not assume a particular structure applies. Confirm the sequence and any conditions with both before relying on it, and never offer the same invoice as security to two lenders.
Does factoring affect my packing credit or borrowing base?
If your bank sizes a facility against your total receivables, selling invoices to a factor reduces what is counted in that pool. This is an administrative and compliance point, not a reason to avoid combining the two. Tell your bank which invoices and buyers are factored. Some exporters use factoring precisely for buyers or tenors their bank's facility does not cover.
A side-by-side view
| Packing credit | Export factoring | |
|---|---|---|
| Stage funded | Before shipment (production) | After shipment (invoice to cash) |
| Funded against | An export order or LC and your credit standing | An issued invoice and the buyer's credit standing |
| Typical provider | Your bank | A finance provider such as an IFSC Finance Company |
| The gap it closes | "I need cash to fulfil this order" | "I have shipped and am waiting to be paid" |
For where each fits in the cycle, read pre-shipment vs post-shipment finance; for the third common tool, see export factoring vs letter of credit.
Frequently asked questions
Is packing credit the same as export factoring?
No. Packing credit funds production before shipment against an order; export factoring advances cash against an invoice after shipment.
Which comes first, packing credit or factoring?
Packing credit comes first in the order cycle. Factoring applies once the goods are shipped and the invoice is raised.
Do I need to give up my packing credit line to use factoring?
No. The two address different stages, and many exporters keep both. Keep your bank informed.
Does factoring work for a buyer my bank will not assess?
Factoring is sized on the buyer's creditworthiness, so it can be an option where a bank facility is limited by its view of your own balance sheet. Approval depends on the buyer and invoice.
Sources
- RBI, Master Circular on Rupee/Foreign Currency Export Credit and Customer Service to Exporters, 1 July 2015 (definitions of pre-shipment and post-shipment credit): rbi.org.in. The instructions have since been consolidated into later RBI Directions; this page has not checked the current consolidated text.
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Check eligibility → Takes 60 seconds · no obligationGeneral information for exporters, not legal, tax or financial advice. Regulations change: check the current text with your Authorised Dealer bank or adviser. Any advance is set after credit review and under the facility terms.