Glossary of Terms
A letter of credit that provides for payment by means of a time draft. Acceptance and payment of the draft are guaranteed by the bank issuing the credit only if the documents presented under the credit conform to the L/C. Acceptance credits are advantageous because the beneficiary (the seller) can receive immediate payment by having the draft discounted, while the applicant's (buyer's) obligation to pay is deferred until the maturity of the draft.
A time draft that has been accepted on its face and bears in writing the unconditional obligation of the person or firm upon whom it is drawn to pay the draft at its maturity.
By accepting the draft, the Drawee Bank becomes the Accepting Bank.
The bank to which the Issuing Bank sends the Letter of Credit, with instructions to notify the Exporter (Beneficiary), with no obligation to pay.
Advance Payment Guarantee
A guarantee issued by a bank, on behalf of a seller to a buyer, in relation to any advance payment that is made by the buyer to the seller to allow the contract to begin. If the contract is not completed the buyer can claim reimbursement of the advance payment under the guarantee.
A change in the terms to a Letter of Credit that is already issued. Such changes can only be made with the agreement of all parties to the Letter of Credit.
The party that has contracted to buy goods; the Importer in the Letter of Credit process, who applies to an issuing bank for a Letter of Credit.
Available with Bank
The bank authorized in the Letter of Credit to effect payment under, accept or negotiate the Letter of Credit.
The process by which a third party, usually a bank guarantees the undertaking of the drawee to meet their responsibility under a Bill of Exchange or Draft. The words "Per Aval" and the signature of the avalizing (guarantor) party must be written on the Bill.
The company or individual in whose favor a letter of credit is issued.
A guarantee issued by a bank on behalf of a seller to a buyer to support the sellers bid or tender for a contract. If the sellers bid is accepted, and they fail to sign a contract, the buyer can claim compensation under the guarantee.
Bill Of Exchange
An unconditional order written from the drawer to the drawee directing the drawee to pay a certain sum at a fixed or future determinable date, to the order of the party who is to receive payment (the payee). Generally interchangeable with the word "draft";
Bill Of Lading
A document issued by a carrier to a shipper that serves the following purposes:
- A receipt for the goods delivered to the carrier for shipment
- A definition of the contract of carriage of the goods from the port of shipment to the port of destination listed in the bill of lading
- Evidence of title to the relative goods.
A warehouse authorized by customs authorities for storage of goods on which payment of duties is deferred until the goods are removed.
Certificate Of Origin
A document, certifying as to the country of origin of specified goods.
Cost and Freight. Exporter pays costs and freight to deliver the goods to the named port of destination. This term can be used only for sea and inland waterway transport.
Cost, Insurance and Freight. Exporter pays costs, insurance and freight to deliver the goods to the named port of destination.
The French ECA
The bank to which the remitting bank sends a draft and/or documents for collection.
Drafts and shipping documents created by a seller, drawn on and payable by a buyer which are sent to the buyer's bank (collecting bank) from the seller's bank ( remitting bank) with instruction to the collecting bank to deliver documents to the buyer only against payment or acceptance of the draft . Neither the remitting nor collecting bank guarantees payment in a documentary collection.
A covering form or letter sent by a bank or seller asking that the enclosed shipping documents and bill of exchange are released to a buyer to be accepted or paid.
Confirmed Letter of Credit
When a bank other than the issuing bank adds its payment guarantee under the letter of credit. It normally is used if a seller finds the issuing bank an unacceptable risk and asks his or her own bank or another acceptable bank to guarantee (confirm) the issuing bank's letter of credit.
The bank which at the request of the Issuing Bank, adds its confirmation to the Letter of Credit. In doing so, the Confirming Bank undertakes to make payment to the Exporter upon presentation of documents under the Letter of Credit assuming all terms and conditions of the Letter of Credit have been met.
An invoice from the seller of goods, to the buyer of goods, which contains an itemized list of the merchandise with the complete description of goods with their unit value and total value. Depending on the Customs requirements of the destination country, there may be additional requirements, statement or clauses that must appear as well.
The individual or company to whom a seller or shipper sends merchandise and who, upon presentation of necessary documents, is recognized as the merchandise owner for the purpose of declaring and paying customs duties.
Person who transfers title to goods in a bill of lading or equivalent document. A consignor might be the owner of the goods, or a freight forwarder who transfers goods on behalf of his principal.
Deferred Payment Credit
A type of commercial Letter of Credit providing for payment to the beneficiary at a fixed period of time after presentation of conforming documents although no time draft is required.
An accepted draft against which a loan is made and the interest is deducted immediately.
The rate at which the face value of a bill or note is discounted to its present value. It is composed of a base rate such as LIBOR and a margin for the perceived credit risk of the obligor/guarantor.
When documents presented by an Exporter under a Letter of Credit do not comply with the terms of the Letter of Credit or are inconsistent with other documents presented.
A Letter of Credit that is available to the beneficiary against presentation of a draft and certain other specified documents.
Documents Against Acceptance
Instructions given by a seller to his bank that the documents attached to a time draft for collection are deliverable to the drawee only against the drawee's acceptance of the accompanying draft.
Documents Against Payment
Instructions given by a seller to his bank that the document attached to a sight draft for collection are deliverable to the drawee (buyer) only against payment.
An unconditional order in writing from one party (the Drawer) to another (the Drawee), directing the drawee to pay a specified amount to a named third party (the payee) on presentation or on a fixed date. Generally interchangeable with bill of exchange.
The party that issues a Bill of Exchange or draft. Generally the Exporter in an international trade transaction.
The individual or firm on whom a draft is drawn and who owes the stated amount to the drawer.
Export credit agencies are government bodies or institutions that assist exporters in industrialized countries to sell capital goods to buyers in developing countries, by guaranteeing the credit payment in whole or in part of the importer.
Export Credit Guarantee Department, the British ECA.
The United States of America ECA.
To send good out of a country, the exporter is usually the seller or an intermediary who transmits the goods from the seller.
The party that has contracted to sell goods. Also known as seller or beneficiary.
A government document that permits the licensee to engage in the export of designated goods to certain destinations.
Is the process of purchasing of accounts receivable in exchange for immediate payment at a discount.
Factoring can be a complete financial package that combines financing, credit risk protection, accounts receivable bookkeeping and collection services. Under an agreement, the factor purchases or gurantees the seller's accounts receivable, normally without recourse, and assumes the responsibility for the debtor's financial ability to pay. If the debtor goes bankrupt or is unable to pay it's debts for credit reasons, the factor will pay the seller or the bank lending against the guarantee.
The right of a factor to retain possession of designated assets until the factor receives full compensation for said assets.
Free Alongside Ship. Exporter delivers the goods alongside the vessel on the quay or in the lighters at the named port of shipment.
FOB (Free On Board)
The seller fulfils his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the goods from that point.
Free On Board. Exporter delivers the goods on board the vessel or at the airport at the named port/airport of shipment.
Is a method of trade finance where the unconditional debt obligations arising from the supply of goods and/or services are purchased on a non-recourse basis. The instruments are generally Bills of Exchange, Drafts or Promissory Notes.
In a forfaiting transaction, the exporter gives up the rights to claim for payment of goods or services delivered to an importer under a contract of sale, in return for a cash payment. In exchange for the payment, the bank takes over the exporter's debt instruments and assumes the full risk of payment by the importer. The exporter is relieved of any financial risk in the transaction and is liable only for the quality and reliability of the goods and/or services provided.
The party that has contracted to buy goods. Also known as buyer or applicant.
A certificate issued by countries exercising import controls that permits importation of the articles stated in the license and often authorizes and/or releases the funds in payment of the importation.
A document issued by the assured or his agent which pertains to and makes reference to an open cargo/master cargo policy maintained by the assured to insure all shipments during the period of the insurance.
The insurance certificate is an abbreviated form of the master policy and is therefore a negotiable document that must be endorsed by the assured or payee before it can be passed on to another party.
Irrevocable Letter of Credit
A Letter of Credit that cannot be canceled or changed without the consent of all parties, including the Exporter. Unless otherwise stipulated, all Letters of Credit are irrevocable.
The bank issuing the Letter of Credit at the request of its customer the Importer (Applicant) in favor of the Exporter (Beneficiary), guaranteeing payment under the Letter of Credit if all terms and conditions are met.
Letter of Credit
A written instrument issued by a bank at the request of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms and conditions set out in the Letter of Credit. Also referred to as a Documentary Credit.
Letter of Credit Transferable
A Letter of Credit that allows the Beneficiary (Exporter) to instruct its bank to transfer the credit in part or in whole, to a Secondary Beneficiary.
Letter Of Credit, Advised
An L/C which carries the undertaking of the issuing bank to make payment and is transmitted to the seller through the seller's bank for authentication only.
Letter Of Credit, Negotiable
An L/C that is available to the beneficiary by negotiation of documents with any bank. The issuing bank's engagement to make payment extends to "bona fide holders of drafts."
Letter Of Credit, Restricted
An L/C that is available to the beneficiary by negotiation of documents with a particular bank named in the credit.
London Interbank Offered Rate, the free market objective interest rate at which banks offer funds to other banks of a certain perceived market standing.
A document that lists in detail all the bills of lading issued by a steamship vessel, agent, or master for a particular voyage. The manifest is a detailed summary of the total cargo of a vessel and is used primarily for customs purposes.
Italian state-owned export agency.
A trade arrangement in which goods are shipped to a foreign buyer without guarantee of payment such as a note, L/C, or other formal written evidence of indebtedness. The importer then makes payment on his account in the manner specified on the commercial invoice: sight, 30, 60, 90 days, and so forth. Usually open account terms are granted to an exporter's best customers only.
A specified time period in a L/C transaction, in which a beneficiary must present documents to the negotiating bank. The time period is automatically 21 days after the date of the transport document unless otherwise specified.
The Collecting Bank making presentation to the Importer (drawee), usually the Importer's bank.
A negotiable instrument which is drawn/issued by the importer to the order of the exporter, and accepted/taken by the exporter as the payment mechanism for the underlying obligation of the importer. Value can be transferred by endorsement.
The bank that the Exporter authorizes to carry out the Collection on its behalf.
Revocable Letter of Credit
A revocable Letter of Credit can be revoked without the consent of the Exporter, meaning that it may be canceled or changed up to the time the documents are presented.
Standby Letter of Credit
A letter of credit which a bank issues on behalf of its customer to serve as a guarantee to the beneficiary of the letter of credit that the bank's customer will perform a specified contract with the beneficiay. If the customer defaults, the beneficiary may draw funds against the letter of credit as penalties or as payments, whichever the terms of the credit provide. Standby L/C's are often used in lieu of bid or performance bonds or as payment guarantees, or as financial security for goods purchased on Open Account.
Standardized contract terms issued by the International Chamber of Commerce that describe the obligations of the Exporter and Importer with respect to freight costs, insurance, taxes, duties, etc.
A draft payable upon presentation to the drawee.
The bank authorized by the Issuing Bank to transfer at the Beneficiary's request all or part of the Letter of Credit to another party.
A written declaration by a customer to a bank that ownership in goods released by the bank is retained by the bank, and that the client has received the goods in trust only. Such a trust receipt may be is given by the customer to the bank to induce the bank to issue a letter of indemnity to a carrier to release a shipment
U.C.P. 500 (ICC 500)
Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 500. This publication outlines regulations, that govern bank letter of credit transactions.
A debt obligation on which the right of recourse towards the seller has been surrendered by the buyer