Glossary of Terms
Glossary of Terms
Jump to a glossary term
A
A letter of credit available "by acceptance" calling for a time draft (or usance draft), drawn on an intermediate accepting bank, that the drawee (payer) has accepted and is unconditionally obligated to pay at maturity.
The buyer delivers payment to the seller before the seller releases the goods. Some sellers ask for this payment to show good faith on the part of the buyer and also to enhance their cash flow related to the sale of particular custom-made items.
Bank that notifies the beneficiary that a letter of credit is available from the issuing bank. The advising bank can be a branch office of the issuing bank or a correspondent bank located in the beneficiary's country.
(See Steamship Guarantee)
Non-negotiable forwarding or carrying agreement between an air carrier and a shipper (or freight forwarder), serves as a receipt for the shipper, indicating that the carrier has accepted the goods listed therein and obligates the carrier to carry the consignment to the airport of destination according to specified conditions.
Extensive insurance coverage for loss or damage to goods but excludes special risks such as war, strikes, perishing of goods or any other causes listed in the insurance policy.
Change to a letter of credit, usually in the interest of the beneficiary.
Party applying to issuing bank to issue the letter of credit, usually an importer.
Document signed by the beneficiary under a letter of credit assigning the rights to proceeds from a letter of credit drawing to a third party. From the perspective of the assignee, an assignment differs radically from a transferable letter of credit as the latter conveys a right to the transferee to present documents under a letter of credit, the former does not.
B
Short-term financial instrument that is the unconditional obligation of the accepting bank, used to finance trade-related transactions (e.g., importation, exportation, domestic shipment or storage of goods in inventory).
The individual or company to whom money is payable according to terms of a letter of credit.
A written, unconditional order, signed by the drawer and addressed to the drawee, to pay a sum of money at a fixed or future date to the order of the payee or to the bearer.
A document that establishes the terms of a contract between a shipper and a transportation company, serves as a document of title, a contract of carriage and a receipt for goods.
Cash deposit which cannot be transferred to another country because of local regulations or a shortage of foreign exchange.
C
Title, risk and insurance cost pass to buyer when goods are delivered on board the ship by seller and cross the ship's rails; seller pays the transportation cost to the ocean port of destination; used for ocean vessel port-to-port, shipments that are not containerized.
Title and risk pass to buyer when goods are delivered on board the ship by seller and cross the ship's rail; seller pays transportation and insurance cost to ocean port of destination; used for ocean vessel port-to-port, shipments are not containerized.
Title and risk pass to buyer when delivered to first carrier at named place or port of destination by seller, who pays transportation and insurance cost to destination; used for any mode of transportation, including air or ocean containerized and roll-on/roll-off shipments.
Title, risk and insurance cost pass to buyer when delivered to first carrier at named place or port of destination by seller, who pays transportation cost to destination; used for any mode of transportation, including air or ocean containerized and roll-on/roll-off shipments.
Customs document allowing special categories of goods to cross international borders without paying duties or posting bonds.
Method of payment for goods in which documents transferring title are given to the buyer upon payment of cash to an intermediary acting for the seller, usually a bank or commission house.
Method of payment for goods in which the buyer pays the seller in advance of the shipment of goods. Usually employed when the goods, such as specialized machinery, are built to order.
A certified document showing the origin of goods, required by certain countries for tariff purposes.
A receipt for goods issued by a carrier with an indication that the goods were received in "apparent good order and condition," without damage or other irregularities.
Bank in the importer's country to which the remitting bank sends a draft and/or documents for collection.
A draft drawn on the buyer, usually accompanied by documents, with complete instructions concerning processing for payment or acceptance.
A bill of lading used when more than one carrier is involved in a shipment, for example when a consignment travels by rail and by sea; sometimes referred to as a multi-modal bill of lading.
Seller's itemized list of goods and invoice shipped with descriptions, details, prices and costs addressed to the buyer. Serves as the basis for all other documents about the shipment.
Also called a documentary letter of credit, it is a written document issued by a bank (at the request of the bank's customer) to a specified beneficiary to make payment to the beneficiary under specified conditions.
The act of a bank to add its commitment to that of the issuing bank to pay the beneficiary for compliance documents, although the act of confirmation does not relieve the issuing bank of its obligation to the beneficiary.
A letter of credit guaranteed by both the issuing and advising banks of payment so long as seller's documents are in order, and the letter of credit terms are met. The confirming bank assumes the credit risk of the issuing bank.
The correspondent bank that adds its confirmation to the issuing bank's letter of credit and promises to pay the beneficiary upon presentation of documents specified in the letter of credit.
A receipt for merchandise issued by a freight consolidator (forwarder) to a shipper for goods to be consolidated with other cargoes prior to shipment.
Exercised through the transport documents, control of goods determines whether the buyer will be able to clear an inbound shipment without the transport documents, and thus without paying for the documents held at the bank.
A bank that, in its own country, handles the business of a foreign bank.
The country where a product is made, as determined by the amount of work done on the product in the country and attested to by a certificate of origin.
Help to guard against foreign exchange fluctuations with spot contract, forward contract and foreign currency options.
A person or firm, licensed by the treasury department of their country when required, engaged in entering and clearing goods through customs for a client (importer).
D
Title, risk and responsibility for import clearance pass to buyer when delivered, but not unloaded, to named border point of destination by seller as agreed in the buyer/seller agreement; used for any mode of transportation, but mainly truck or rail, as long as delivery will be made at a land port.
Title and risk pass to buyer when seller delivers goods to named place of destination consistent with the buyer/seller agreement cleared for import, but not unloaded; used for any mode of transportation.
Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point consistent with buyer/seller agreement, but not unloaded, not cleared; seller fulfills obligation when goods have been made available at the named place in the country of importation; buyer is obligated for import clearance; used for any mode of transportation.
Title and risk pass to buyer when delivered on board the ship at the named port of destination by the seller, but unloaded, not cleared; used for ocean shipments only, port-to-port.
Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship, not unloaded, to destination port; used for ocean shipments only on ocean vessel port-to-port.
A draft that matures on a fixed date, regardless of the time of acceptance.
A letter of credit in which the payment is deferred to a specific later date.
Storage fee for inbound merchandise held beyond the free time allowed for loading or unloading at a pier or freight terminal.
Same as Import Documentary Collections, except the seller is responsible for the transaction, sending all documents to the foreign bank for payment.
When documents presented do not conform to the requirements of the letter of credit, banks will not process them, so the buyer and/or seller must provide further instructions before the bank will process.
Refusal on the part of the drawee to accept a draft or pay upon maturity.
An order written by the seller to the bank to deliver documents against payment, or to deliver documents against acceptance to the buyer, a branch or a correspondent bank in the country of the buyer, with instructions for collection. (See Direct Documentary Export Collections, Import Documentary Collections)
(See Import Letter of Credit, Export Letter of Credit)
Also known as time or usance drafts, these are instructions given by a shipper to a bank indicating that export documents transferring title to goods should be delivered to the buyer only upon the buyer's acceptance of the attached draft.
Also called sight drafts or drafts, these are documentary collections in which the seller instructs the bank to release the export documents to the buyer against cash payments.
An unconditional signed order by one party (the drawer) addressed to another party (the drawee) directing the drawee to pay a specified sum to the order of the third party (the payee) at a fixed or determinable future date.
Party upon whom a bill of exchange is drawn, also, very commonly the party to whom presentation is to be made in accordance with a collection instruction.
Party that issues a draft and thus stands to receive payment.
E
Title and risk pass to buyer, including payment of all transportation and insurance cost from the named place where shipment is available to the buyer (seller's facility), not loaded; buyer contracts for any transportation; used for any mode of transportation.
Signature on back of negotiable instrument (i.e., bill of lading) for the purpose of transferring rights to another.
U.S. dollars on deposit in any branch at any bank located outside the United States.
Japanese yen on deposit in banks outside Japan, and may be outside of Europe.
A provision in a letter of credit for the expiration date to extend without requiring an amendment.
The U.S. Export-Import Bank, an independent U.S. Government Agency which facilitates exports of U.S. goods by providing loan guarantees and insurance for repayment of bank-provided export credit.
The price of one currency expressed in terms of another; may be quoted spot – for delivery within two working days, or forward – for delivery at a future time.
Date after which a letter of credit is no longer available for payment.
Issued by a foreign bank on behalf of the exporter/seller, it's a Letter of Credit issued by the buyer's bank authorizing the seller to draw money up to a specified amount from the buyer's bank, provided the conditions set out in the Letter of Credit are met.
Document issued by a U.S. Government agency allowing the export of goods.
Special financing to support exports of U.S.-made products.
F
Title and risk pass to buyer, including payment of all transportation and insurance cost, once delivered alongside ship at the named ocean port of shipment by the seller; the export clearance obligation rests with the seller; used for sea or inland waterway transportation, shipments are not containerized, ocean vessel port-to-port.
Title and risk pass to buyer, including transportation and insurance cost, when the seller delivers goods unloaded at the seller's dock or a named place cleared for export to the international carrier or agent, not loaded; seller is obligated to load the goods on the buyer's collecting vehicle; it is the buyer's obligation to receive the seller's arriving vehicle unloaded; used for any mode of transportation.
Title and risk pass to buyer, including payment of all transportation and insurance cost, once delivered on board the ship at the named ocean port of shipment by the seller; used for sea or inland waterway transportation where it is important that the goods pass the ship's rail, ocean vessel port-to-port.
Provides protection from adverse exchange rate moves while maintaining the opportunity.
A common clause in a contract excusing a party from fulfilling its obligation because of events beyond its control, such as earthquakes, floods or war.
An account maintained by a bank in foreign currency and payable in that currency.
Usually used to make payments – checks drawn on foreign banks in a wide variety of foreign currencies.
Commitment to buy or sell a currency at a fixed rate for delivery on a specified future date.
A receipt for merchandise to be shipped.
Company that books shipment of goods and may provide other services, such as booking cargo, space, trucking, warehousing, pier delivery, export clearance and document preparations; often is an agent for the shipper.
G
Commitment functionally similar to standby letters of credit, often used outside the United States.
H
An international goods classification system for describing cargo in international trade under a single commodity-coding scheme that assigns identification numbers to specific products and ensures all parties use a consistent classification for purposes of documentation, statistical control and duty assessment.
I
International Bank Account Number – the domestic account number standard for all retail and commercial banking accounts in the European Union and certain other European countries.
Alternative to a letter of credit, payment is made on a collection basis after the necessary documents and drafts have been received by the intermediary bank.
Issued on behalf of the importer/buyer, it's a letter issued by a bank authorizing the seller to draw a stated amount of money from the issuing bank; guarantees payment to seller if seller complies with all terms of the letter of credit.
Document required and issued by some national governments authorizing the importation of goods.
International Chamber of Commerce Terms of Sale. Internationally accepted commercial transportation terms. (See CFR, CIF, CIP, CPT, DAF, DDP, DDU, DEQ, DES, EXW, FAS, FCA, FOB)
A non-governmental organization serving worldwide business with 123 country members representing tens of thousands of business organizations and companies and promoting world trade and investment based on free and fair competition.
Method for paying or receiving funds internationally.
A written document that cannot be revoked or have any of its conditions changed without specific agreement (usually in written form) from each party. When applied to a letter of credit, the parties who must agree are the issuing bank, confirming bank (if any), beneficiary and account party.
J
K
L
Last day on which goods may be shipped, as evidenced by on-board date on bill of lading or flight date on air waybill.
Document, issued by a bank per instructions by a buyer of goods, authorizing the seller to draw a specified sum of money under specified terms, usually the receipt by the bank of certain documents within a given time. (See Import Letter of Credit, Export Letter of Credit)
M
Bill of lading for shipment by sea.
A bill of lading used when more than one mode of transport is involved in a shipment, for example when a consignment travels by rail and by sea. Also called a combined transport or intermodal bill of lading.
N
A title document to the goods, issued "to the order of" a party, usually the shipper, whose endorsement is required to effect its negotiation. Thus, a shipper's order (negotiable) bill of lading can be bought, sold or traded while goods are in transit and is commonly used for letter-of-credit transactions. The buyer must submit the original bill of lading to the carrier in order to take possession of the goods.
O
Bill of lading validated at the time of loading to transport. Most common types: onboard air, boxcar, container, rail, truck and vessel.
Trade arrangement and payment terms in which goods are shipped to a foreign buyer without guarantee of payment.
Common terminology among bankers for issuing bank in the letter of credit process.
P
Common term, especially in Asia, for pre-export finance provided against a letter of credit.
A document showing the number and kinds of items being shipped. Must be consistent with other documents (especially under a letter of credit).
The bank nominated in the letter of credit to pay out against conforming documents without recourse.
The buyer delivers cash to the seller before the seller releases the goods. Also called cash in advance (CAD), it may not mean exactly the same as advance payment.
U.S. banking term for a loan to an exporter to finance the accumulation of materials, the manufacture, assembly, production, packaging and transport of physical goods to fulfill an export order. Commonly guaranteed by Ex-Im or SBA Working Capital Guarantee programs.
Time allowed after issue of transport document to present documents under the letter of credit.
Bank in a documentary collection process presenting export documents to the drawee for payment.
An invoice from seller to buyer outlining details of a proposed sale, containing sufficient information to enable the buyer to prepare a letter of credit application.
Q
R
The paying party retains the right to the funds in the event that reimbursement (from another party) is not forthcoming.
The bank empowered by the issuing bank (i.e., with a bank balance) to charge the account of the issuing bank and pay to the bank collecting funds under a letter of credit.
Exporter's bank in a documentary collection process taking export documents and sending them to a correspondent in the country of the importer (the drawee in the collection process).
Adjective applied to a letter of credit which may be canceled or amended unilaterally by the issuing bank. Revocable letters of credit are rare, but may be used between friendly parties to observe the spirit of government regulations.
An irrevocable letter issued for a specific amount that renews itself for the same amount over a given period.
S
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is an industry-owned co-operative providing secure, standardized messaging services and interface software to over 8,000 financial institutions in 207 countries and territories.
A draft payable on demand upon presentation.
Straightforward exchange of one currency for another at the current market price.
The purchase or sale of foreign currency for immediate delivery.
Contingent (future) obligation of the issuing bank to make payment to the designated beneficiary if the bank's customer fails to perform as called for under the terms of a contract.
An indemnity letter issued by a bank to a steamship line requesting release of merchandise in the absence of original bills of lading.
A non-negotiable bill of lading whereby the consignee named in the bill is the owner of the goods, e.g., it cannot be endorsed from one party to another.
Agreement to purchase (or sell) a currency for delivery on one date and simultaneously sell (or purchase) the same currency for a particular fate in the future at a specified price.
T
Time and date for payment of a draft.
A bill of lading that covers transportation by more than one carrier on more than one mode of transport from the point of issue to the final destination.
A bill of exchange payable by the drawee at some future date. Sometimes called a usance draft.
Time or a date draft that has been accepted by the buyer (the drawee) for payment at maturity.
A bill of lading, an air waybill, a truck receipt or any other document acting as a receipt of goods and a contract of carriage.
The transfer of goods from one transportation line to another or from one ship to another. Liability may pass from one carrier to the next, or it may be covered by a through bill of lading issued by the first carrier.
A measurement of cargo based on a standard ocean shipment container, which is 20 feet in length.
U
Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600. This publication outlines regulations, when approved by banks, that govern bank letter of credit transactions.
Uniform Rules of Collections, International Chamber of Commerce Publication No. 522. An internationally-recognized code for the handling of collections – clean or documentary.
Letter of credit forwarded to the beneficiary by the advising bank without engagement on the part of the advising bank.
U.S. banking term for time allowed for payment of a bill of exchange.
Also called a time draft in the U.S.
Also called a time letter of credit in the U.S.