CHAPTER 38 - GLOSSARY - TERMS USED IN
TRADE (DOMESTIC & INTERNATIONAL)
Acceptance
(Usance) Credit:
·
LC which includes a term bill of exchange
which is accepted by the bank on whom it is drawn (Issuing / Advising Bank) and
the proceeds are paid to the beneficiary at maturity. Also known as Term Bill
or Tenor Bill.
·
Payment is not immediate. (Future Dated
Payment)
·
Bill of Exchange is to be presented.
·
Payment is made on the maturity date (due
date) of the Bill of Exchange.
·
Provides a means by which the beneficiary
may be able to obtain finance by discounting the bank accepted bill of
exchange.
Adjust
Event:
·
This event is used to update necessary
information in the transaction of master record more of an internal amendment.
It will be used essentially to correct human errors. Most banks (Advising Bank)
in Export will use this event for adding confirmation through Internal
Amendment.
Advice of Fate: (
Fating )
·
Notification of the status of a
collection that is still outstanding. When a draft bears this phrase, the time
begins to run from its date. The date of maturity is therefore fixed and does
not depend on the date of acceptance of the draft.
Airway bill: (Air Bill) (Document)
·
Evidence of receipt of goods for shipment
and contract of carriage by air.
·
Non - negotiable document and is not a
document of title to the goods.
·
Document signed by an airline to show
receipt of goods for air transportation from and to the airports indicated.
·
Goods will be delivered to the person
named as the consignee in the AWB.
·
Delivery Order (D.O.) required to take
delivery of the goods if goods are consigned to a Bank.
Air Cargo Insurance: (Pls
also see MARINE INSURANCE)
·
A type of insurance policy offered by
Insurance Companies that protects a buyer or seller of goods being transported
through the air. Air cargo insurance is designed to protect the insured against
items damaged, destroyed or lost.
Airway bill
Endorsement Order: ( Delivery Order )
·
AWB should not be consigned to
order, or to order of any party, it must be Straight Consigned to the issuing bank or the Applicant. In
case the AWB is directly consigned to the issuing bank (Most Cases AWB will be
consigned directly to Bank), a Delivery Order issued by the issuing bank is
enough in order for the applicant to release the goods like Shipping Guarantee.
Amendment:
·
Any changes made to the terms and
conditions of the original LC / Guarantee (which has already been issued) with
the concurrence of all the parties.
·
A credit can neither be amended nor cancelled
without the agreement of the issuing bank, the confirming bank, if
any, and the beneficiary.
·
If beneficiary is not happy with the
Terms and Conditions of LC / Guarantee the beneficiary should contact the
applicant and request an amendment.
·
Beneficiary has the right to refuse the
amendment under letter of credit.
§ Internal
Amendment: Simple Corrections from applicant side which will not be communicated
to Third Parties like Beneficiary, Confirming Bank Etc.
§ External
Amendment: Any changes which will be communicated through a (MT707) message to
Beneficiary, Confirming Bank, Advising Bank Etc.
§ Beneficiary’s
Consent Amendment: In certain cases requires Beneficiary’s consent. In such
cases, the Issuing Bank just sends an Amendment Message (MT707) to the Advising
Bank but does not record any changes to its Contingent Liability till
acceptance is received from the Beneficiary. (in Most Banks External Amendment and Beneficiary’s
Consent Amendment are same)
Analysis Certificate:
(Document)
·
Certificate which provides the contents
of the goods.
·
Required by the importer to ensure that the
goods supplied is as per requirement.
Applicant:
·
The party on whose request the issuing bank
issues a credit.
Assignment of Proceeds:
·
A request by the beneficiary to pay all
or part of the funds due to him to a third party. This instrument does not
transfer rights in the letter of credit nor the title to the goods.
Availability With: ( Available With )
·
A term used in a LC to indicate the bank
nominated by the issuing bank to pay, accept, incur a deferred payment or
negotiate documents under the LC.
·
Restricted LC (Nominated Bank).
·
Unrestricted LC (Any Bank - Any
Negotiating Bank).
Available
By: ( Letter of Credit Available By )
·
Payment
(Sight) - immediate payment to be made to the beneficiary.
·
Acceptance (Usance)
- payment to be made to the beneficiary at a future date based on Bill of
Exchange accepted by the drawee.
·
Deferred
Payment - payment to be released to the
beneficiary at various future dates (no Bill of Exchange is required).
·
Negotiation
(Sight and Usance) - releasing / agreeing to release payment to the beneficiary
against complying presentation by Negotiating Bank.
Aval:
·
Aval is a joint commitment by the
principal debtor and a third party (normally a financial institution) to make
payment of an obligation in favour of the beneficiary. The third party (usually
a Bank) commits itself for the full credit amount in the event that the principal
debtor does not fulfill his obligation on due date.
Avalize
/ Avalization (Co - Acceptance):
·
The process by which a third party
(usually a Bank) which guarantees the undertaking of the drawee (the person on
whom the Bill of Exchange is drawn) to pay on the due date.
·
Done in respect of usance collection
documents.
·
An avalized documents is as good as a
documents under a LC.
·
The seller will be able to mitigate the
risk of default by the buyer by getting the Bill of Exchange avalized (co -
accepted) by the buyer's bank.
·
Once the Bill of Exchange is avalized (co
- accepted), the buyer's bank is committed to make payment to the seller on the
due date irrespective of whether the buyer has money in his account or not.
Beneficiary:
·
The party who is to receive the benefit
(payment) of the LC. The consignee of an LC and the beneficiary may not be the
same. The credit is issued in the beneficiary's favor.
Bill of Entry: (B.O.E)
·
A list or account of goods entered at a
customs house for imports and exports, detailing the merchant, quantity of
goods, their type, and place of origin or destination. Prepared by a qualified
customs clerk or broker, It is examined and issued by the customs authorities
presenting the total assigned value and the corresponding duty charged (from
the tariff) on the cargo.
·
Bill of Entry to be filed within 30 days
of arrival of Goods by the Importer. In order to import (Export) any goods to
India, an importer (Exporter) has to obtain IEC - Import Export Code - from
Director General of Foreign Trade- DGFT. This Import Export Code details is
linked electronically with customs department, once importer obtained IEC with
DGFT.
Bill of Exchange: ( Draft
)(B/E)
·
Unconditional order in writing drawn by
the seller asking the buyer to pay a specific amount of money immediately or at
a future date. It is a Negotiable Instrument.
·
Unconditional Order.
·
Drawn by the Seller (Drawer).
·
Drawn on the Buyer (Drawee).
·
Specific amount.
·
Immediate payment / payment on a future
determinable date.
Bill of Lading: (Document)
·
Evidence of receipt of goods for shipment
& Contract of carriage.
·
Negotiable document which evidences
shipment of goods by sea and conveys title to goods.
·
Full Set - all the 3 originals constitute
a full set.
·
Consignee - Usually the LC Issuing bank /
Applicant (buyer) of the goods.
·
Only one original is required to be
produced for taking delivery of the goods. Once one original is produced, all
other original become null & void.
Buyers Credit:
(Subjective)
·
Buyer's credit is a short term credit
available to an importer (buyer)
from overseas lenders such as banks and other financial
institution for goods they are importing. The
overseas banks usually lend the importer (buyer) based on the letter
of comfort (a bank guarantee) issued by the
importer's bank. For this service the importer's bank or buyer's credit
consultant charges a fee called an arrangement fee.
·
Buyer's credit helps local importers gain
access to cheaper foreign funds that may be closer to LIBOR
rates (or any other Money Market rates like MIBOR, SIBOR, HIBOR) as against
local sources of funding which are more costly.
·
LIBOR - London Interbank Offered Rate,
interest on deposits traded between banks.
Cash against Documents
(CAD) or Documents against Pay (DP):
·
A collection arrangement wherein shipping
documents are released to the buyer only against payment.
Case of
Need (Seller's Agent):
·
In case of any issues with the goods or
the payment in the country of the importer, the exporter will find it very
difficult to co -ordinate with the shipping company, insurance company,
collecting bank or finding an alternate buyer.
·
Case of Need is the person (normally the
agent of the exporter located in the country of residence of the importer) who
will be able to look after the interest of the seller in respect of the following:
·
Persuading the buyer to accept or pay.
·
Liaising with the collecting / presenting
bank handling the collection.
·
Assist in clearing / storing or insuring
the goods.
·
Finding an alternate buyer in case the
original buyer refuses accept delivery of the goods.
·
The exporter has to clearly state the
powers that have been granted to the case of need.
Carriage:
·
A means of Conveyance.
Carrier:
·
Person or a company hired for the
transportation of goods e.g. shipping company, airlines, railways etc.
Certificate of Origin:
(Document)
·
Indicated the country of origin of goods.
·
Normally issued by a Chamber of Commerce.
Clean
Bill of Lading: (Document) (Also see Foul Bill of Lading)
·
No evidence of defective condition of
goods / packing.
·
Gives a strong title to the consignee
since the original BL has to be produced for taking delivery of the goods.
Clean
Letter of Credit:
·
A letter of credit payable upon
presentation of the draft or Bill of Exchange, without any supporting document
being required. L/C that does not require any document other than a draft, this
is very similar to Clean Collection.
CMR:
(Document) (CMR Road Transport Document or Truck Consignment Note )
·
Standardized document for cross-border
transport (International road transport) of cargo by road, It relates to
various legal issues concerning transportation of cargo by road. It is also
known as Road transport document or road consignment note.
Co-Financing:
·
Loans made by a financial institution,
such as an export credit agency or a commercial bank, in association with the
World Bank or other development banks.
Collateral:
·
Collateral is pledging a specific property
to a Bank or lender
for Security or to secure
repayment of a loan. Collateral is traditionally refers to Secured Lending or
Financing. Collection:
·
Seller sends the documents relating to
the shipment through his or her bank to the buyer's bank requesting them to
release the documents to the buyer against payment (DP) or against acceptance
(DA).
Collection Letter (Collection Instruction):
·
Covering letter accompanying the
collection documents prepared by the seller or seller's bank (Remitting Bank)
addressed to the buyer's bank (Collecting / Presenting Bank) providing the
following details.
·
Reference Number.
·
Currency & Amount of document.
·
List of documents enclosed and their
numerical count.
·
Release of documents against payment /
acceptance.
·
Collection of charges (seller or buyer)
— Waive / Do not waive.
·
Interest charges - Waive / Do not waive.
·
Details of Bank where funds to be
remitted.
·
Case of Need.
Combined Transport Document: (Multimodal
Transport Document)
·
Where different modes of transport
involved. A transport document which covering at least two different modes of
transport.
·
It is nothing but Multimodal Transport
Document or Inter modal Transport Document.
Complying Presentation: (Credit
Compliant Documents)
·
When the presentation of documents is in
accordance with:
1) The terms and conditions of the
credit.
2) The applicable provisions of UCP.
3) International standard banking
practice.
Commercial Invoice: (Document)
·
Full name & address of the buyer and
seller.
·
Description of goods, quantity of goods,
unit price, weight, total price.
·
Issued by the seller and addressed to the
buyer.
·
Contains the terms and conditions of the
documentary credit.
·
This is where usually Special
requirements under this field such as Cost sharing, detailed Tolerance, Signature requirements,
Approval requirements, Date requirements ETC given.
Confirmation
of LC:
·
Confirmation is the undertaking of
another bank (usually in the country of residence of the beneficiary), in
addition to the undertaking of the issuing bank, to pay / accept complying
documents.
·
The confirming bank will confirm the LC
only if the issuing bank specifically requests that bank to add confirmation to
the LC.
·
Confirmation Charges - either paid by the
applicant or beneficiary.
·
Confirmation is required to Mitigate credit risk & Mitigate
country risk.
Consignee:
·
The party on a transport document to whom
the goods are addressed for delivery. The person Entitled to take delivery of
goods. (Normally the buyer / Collecting bank / Issuing bank).
Consignor:
·
The party on a transport document on
whose behalf the goods are being shipped (normally the seller / beneficiary).
Correspondent
Bank:
·
A bank which performs certain operations
on behalf of another bank, usually in a different country. Correspondent banks
hold deposits with each other, and accept and collect items on a reciprocal
basis. It is through networks of correspondent banks that trade banks are able
to service and support international business transactions.
Counter
trade:
·
International trade by exchange of goods (Barter)
rather than by cash purchase.
Documents:
·
Document is which proves that the Seller
has shipped the goods, with the documents only the Buyer.
·
Banks deal with documents and not with
goods, services or performance to which the documents may relate.
Documents against Acceptance (DA):
·
Collection arrangement wherein the
shipping documents are presented to the collecting bank with an instruction to
deliver the same to the buyer against acceptance of the Bill of Exchange.
Documents against Payment (DP) / Cash against Documents
(CAD):
·
Collection arrangement wherein the
shipping documents are presented to the collecting bank with an instruction to
deliver the same to the buyer against cash payment.
Deferred Payment Credit:
·
Payment is not immediate.
·
Drawing amounts are to be paid at a
future determinable date in accordance with the documentary credit.
·
Bill of Exchange is not drawn. This is
the key difference between Acceptance and Deferred Payment.
Demurrage:
·
A charge made by a shipping company or a
port authority for failure to load or remove goods within the time allowed.
Direct Credit :
·
A
credit advised directly to the beneficiary without the use of an advising bank.
Direct Credit is also known as Direct Letter of Credit.
Discounting: ( Also See Below Forfaiting and Factoring )
·
The purchase of accepted term Bill of -
Exchange at a discount to allow funding to the seller till the maturity date.
Discrepancy:
·
Where documents presented under a letter
of credit do not comply with the terms & conditions of the credit, the UCP
and ISBP.
Discrepant Doc or if
Buyer refuses or unable to pay, the below are the things seller can do
·
Find another buyer.
·
Pay for return transportation.
·
Abandon the merchandise.
Dishonour:
·
The refusal to pay or accept a bill of
exchange or any financial document.
Domestic Letters of
Credit: ( Inland Letters of Credit )
·
Domestic letter of credit (or Local
letter of credit) is an L/C used by Buyer and seller in the same country. Where
a bank can or may play the role of both issuing bank and advising bank, it is
not Mandatory or not Necessary that always both the Issuing and Advising bank
to be same bank.
Drawee:
·
The party to which a bill of exchange is
addressed for payment or acceptance.
Drawer:
·
The party that issues a Bill of Exchange
and is the receiver of the money.
Duty:
·
A tax imposed on Imports and Export by a
customs authority of a country.
·
Import Duty.
·
Export Duty.
Evergreen
letter of credit:
·
Standby letter of credit with an initial
expiration date but containing a clause that states that it will be
automatically extended for additional periods unless the issuing bank provides
notice to the beneficiary stating otherwise.
EXIM
Bank:
·
Exim Bank assists Organizations in
locating overseas distributor(s)/buyer(s)/ partner(s) for their
products/services and in identifying opportunities overseas for setting up
plants or projects or acquiring companies overseas.
·
Provides financial assistance to
exporters and importers with a view to promoting the country’s international
trade.
·
They have a range of Services such as
Exporters Credit, Buyers Credit, Line of Credit, Export Services ETC.
·
Some of the Exim banks is involved or
Deal in Letter of Credit and other Trade Finance Payment Methods.
Expiry Date (Bank Guarantee):
·
Is the last date by which the beneficiary
can present a valid claim to the Bank. After the date of expiry, the
beneficiary does not have any claim on the BG issuing bank.
Expiry Date (Letter of
Credit):
·
The last date by which the seller
(Beneficiary) can present documents to the advising / nominated or issuing
bank. After the date of expiry, the beneficiary does not have any claim on the
LC issuing bank.
FEMA:
·
The Foreign Exchange Management Act, 1999
is an Act
of the Parliament
of India "to consolidate and amend the law
relating to foreign exchange with the objective of facilitating external trade
and payments and for promoting the orderly development and maintenance of
foreign exchange market in India". FEMA replaced Foreign
Exchange Regulation Act (FERA).
Force Majeure:
·
The title of a standard clause in marine
contracts exempting the parties for non-fulfillment of their obligations as a
result of conditions beyond their control, such as earthquakes, floods or war (Acts
of God).
Forfaiting and
Factoring: (Subjective)
·
Forfaiting
and Factoring are similar services that serve better
cash flows and risk mitigation to the seller. It is nothing but bank purchases
theInvoices (Receivables) against commodity sales. It may be mentioned that
factoring is for short term receivables (under 90 days) and is more related to
receivables against commodity sales. Forfaiting can be for receivables against
which payments are due over a longer term, over 90 days and even up to 5 years.
The difference in the risk profiles of the recievables is the fundamental
difference between factoring and forfaiting, which has implications for the
cost of services.
·
Both Factoring
and Forfaiting are like bill discounting, but not bill discounting.
·
Factoring
is also a financial transaction involving the purchase of financial
assets or Financial Instruments (Bill of
Exchange) (firm's receivables). That is bank provides factoring services on the
basis that the sellers assigns all the rights and benefits of receivables
arising from sales on credit to the Bank.
(Also see Receivable Financing)
·
Factoring
is not a loan. No debt is assumed by factoring. The funds are unrestricted,
providing a company more flexibility than with a traditional bank loan.
·
In the U.S.A. Forfaiting is known as "Structured Trade Finance”.
Forward Transactions:
(Pls also see SPOT TRANSACTIONS)
·
Foreign exchange transactions settling
between three business days and one year (and sometimes longer).
·
Also known as Forward Contracts.
Foul Bill of lading:
·
A receipt of goods issued by a carrier
with an indication that the goods are damaged when received.
Freight:
·
Transportation of Goods.
Fumigation
Certificate: (Document)
·
The Fumigation certificate, also referred
to as a ‘Pest Control Certificate’ is the proof that wooden packing materials
used in international sea freight shipping e.g. wooden pallets and crates,
wood, wool etc have been fumigated or sterilized prior to the shipment.
Goods:
·
A commodity or a physical, tangible item
is known as Goods.
·
The description of the goods, services or
performance shown on the invoice is to correspond with the description shown in
the letter of credit in Goods field.
·
The buyer and seller should not trade
Sanctioned (Prohibited) Goods or Services.
Honour:
·
To act according to commitment of the LC.
Presentations are honored in different ways depending on the type of credit:
·
Making payment at sight for sight LC.
·
Incurring a deferred payment undertaking
and paying at maturity for deferred payment LC.
·
Accepting a draft drawn by the
beneficiary and paying at maturity for deferred acceptance LC.
Inspection
Certificate: (Document)
·
Certificate which shows the result of
inspection of the goods (quality, condition, contents, etc). Also Known as
Certificate of Analysis.
·
Normally issued by reputed independent
agencies (SGS, Intertek International, Contenca and Bureau Veritas).
Installment letter of
credit:
·
Letter of credit calling for multiple
shipments within specified date ranges.
Insurance
Policy/Certificate: (Document)
·
The date on which the insurance becomes
effective must be the same as or earlier than the date of issuance of the
transport Documents.
·
The Insured Amount must be in the same
currency and usually for the bill amount plus 10 percent.
Interfaces:
·
In a Typical Bank setup, the Core Banking
system will integrate with various surround systems or channels to send and
receive data between them.
·
In Trade Finance, the Most Common
Interfaces are Swift Interface, FTS (Funds transfer), AML Interface etc.
Latest
Shipment Date:
·
A date indicated in the Letter of Credit
by which the seller has to ship the goods to the buyer.
Letter
of Credit Available by Negotiation:
·
A Letter of Credit available with the
Negotiated (Nominated) bank which is authorized to negotiate and make payment
to the beneficiary.
Limit:
·
Extent to which a bank
will advance credit
to a customer. Also called a
guidance line of credit,
its computation may differ from bank to bank, and is rarely (if ever) disclosed
to customers.
Limit Can be both Revolving and Non Revolving. Limit
is completely different from Margin.
Line
of credit:
·
An amount of credit extended to a
borrower. Line of Credit also known as Trade Line.
·
A line of credit is credit
source extended to a business or individual
by a bank
or other financial
institution. A line of credit may take several
forms, such as demand loan, export
packing credit, term loan, discounting, it is effectively a source of funds
that can readily be tapped at the borrower's discretion. Interest
is paid only on money actually withdrawn. (However, the borrower may be
required to pay an unused line fee, often an annualized percentage fee on the
money not withdrawn.) Lines of credit can be secured by collateral,
or may be unsecured.
Lodgement
of Documents in Letter of Credit: ( Document Checking / Capture Check )
·
Scrutinizing or Examining of Documents by
the Banks to check whether the Documents submitted are complying against the
terms and conditions stipulated in the related LC.
Marine
Insurance: (Document)
·
An insurance policy issued by an
insurance company to insure goods against damage / loss in transit.
·
Cargo Insurance - Cargo insurance is a
sub-branch of marine insurance.
·
Shipping Insurance - When goods are
transported by mail or courier is known as Shipping Insurance.
Margin
(Provision):
·
In LC the Issuing Bank is guaranteeing
the payment to the Beneficiary, so for Issuing Bank’s safety a margin amount is
blocked in Applicants bank account to make the payment against a letter of
credit that the bank has or is going to open.
·
So Margin is very similar to Cash
Collateral.
·
So LC Margin is the Amount Blocked from
the Applicant’s Account that Bank keeps in liquid form.
·
This happens when the Bank is not happy
with the Credit Worthiness of Applicant or for the Banks own Safety. Nowadays
most governments in the world have requested to collect maximum deposits
(Margin) from their customers before issuing LC. LC Margin is normally some Percentage
(1 to 100 Percent) or some Amount ($1 to Full LC Amount). It is treated as an
asset by the name of LC Margin.
§
For Example: LC Amount is $1000, LC Margin
Percentage taken as 30% of total LC Amount by the Bank. That is $300.
§
For Example: LC Amount is $1000, LC
Margin Amount is taken as $600by the Bank.
Maturity
/ Due Date:
·
The date on which a Bill of Exchange or
Letter of Credit becomes due for payment.
May
Confirm:
·
When an LC is issued with the Field May Confirm i.e. the LC May be
Confirmed by the Beneficiary’s Bank. If the Beneficiary’s Bank or the Advising
Bank is willing to Confirm, it will become the Confirming Bank and undertakes
to pay the beneficiary (seller) if all the terms and conditions of the LC are
complied with.
Merchanting
Trade:
·
Merchanting Trade transactions are those
transactions where the trader in one country A, purchases goods from country B
and supply the goods to a buyer in country C. Thus the goods never touch the
boundary of the country of trader, such trade transactions are regulated and
certain restrictions are placed on them.
Mirror Account:
·
A mirror account is maintained by the
local bank for accounting of inflows and outflows of forex taking place from a
nostro account of the bank.
Mixed Payment:
·
A Mixed Payment LC allows for a mixture
of payment terms in the same LC - i.e., such LCs can allow Payment on Sight or
on Acceptance or Deferred Payment.
·
Mixed payment is not covered under UCP
600 with a direct reference but parties can use mixed payments under letters of
credit.
Negotiation:
·
Negotiation means the purchase of the
drafts and / or documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the banking day on
which payment is due.
Negotiation Payment:
·
A Negotiation LC is basically a way of
expressing availability (of a LC) in terms of payment. Thus an LC which is
available BY NEGOTIATION provides for payment of the document value to the
Exporter/Beneficiary by the Negotiating Bank, on examination of the documents
presented and finding them to be in total compliance of the Terms and
conditions stipulated in the LC.
Negotiable Instrument:
·
A negotiable instrument is any document
which enables one party to transfer their rights / claim to another party by
endorsement and delivery e.g. Bill of Exchange, Promissory Note etc.
Nostro
and Vostro:
·
The terms nostro and vostro are used,
mainly by banks, when one bank keeps money at another bank. Both banks need to
keep records of how much money is being kept by one bank on behalf of the
other. In order to distinguish between the two sets of records of the same
balance and set of transactions, banks refer to the accounts as nostro and
vostro. Speaking from the point of view of the bank whose money is being held
at another bank:
·
A nostro is (our account) of our money,
held by the other bank.
·
A vostro is (our account) of other bank
money, held by us.
Nostro
Account and Vostro Account:
·
A nostro account will be in foreign
currency (it is a record of money held by a bank in another country in the
currency of that country) i.e. a bank in country A keeping a record of money
held by a bank in country B, in the currency of country B.
·
A vostro account will be in the local
currency of the bank where the money is being held i.e. it is the bank in
Country B's record of the money kept by the bank from country A with it.
Notify:
·
Is the Name and Address of the Notify
Party is merely someone that needs to be notified about the arrival of the
cargo covered in the bill of lading.
·
The person, usually the importer, to whom
the shipping company or its agent notice of arrival of goods.
Open Insurance Policy:
·
A marine insurance policy that applies to
all shipments made by an importer or exporter over a period of time rather than
to one shipment only.
Packing Credit:
(Export Loan)
·
Pre-shipment Packing Credit is also known
as 'Packing credit' , It is a loan/ advance granted to an exporter for
financing the purchase, processing, manufacturing or packing of goods prior to
shipment.
Packing List:
(Document)
·
Document which provides the packing of
goods into number of packages / cartons etc.
·
Gross & Net Weight and Measurement of
Packages.
Partial Shipment:
·
When the total quantity to be shipped is
shipped in lesser quantities and in more than one installment.
·
Partial shipment is permitted if the LC
is silent regarding the partial shipment.
·
In case of partial shipment is prohibited,
the LC should clearly state that.
Payment under reserve:
( With Recourse )
·
Sometimes when the documents are
discrepant, the nominated/negotiating bank shall verify the same and at its
sole discretion may pay the proceeds ‘under reserve’ to the beneficiary and
shall forward the documents to the Issuing Bank. The Bank, when doing so may
also hold the beneficiary as the risk party. At a subsequent date, if the
payment is received from the Issuing Bank, the Bank can take the payment to the
debit of the respective Nostro account and offset the ‘Payment Under Reserve’
(which was initially debited to pay the amount to the beneficiary). In case,
payment is not received or the document being rejected by the Issuing Bank, the
same may be recovered back from the beneficiary.
Period of
Presentation:
·
The number of days given to the seller
(beneficiary) from the date of shipment to present the shipping documents to
the advising / nominated or issuing bank.
·
This field denotes from which Place the
goods needs to be dispatched.
·
This field denotes to which Place the
goods needs to be delivered.
Post
Shipment Financing:
·
The Finance required for the period of
time after goods have been shipped before payments is received by the Exporter
from the Importer or the Bank (Issuing Bank).
·
This field denotes from which port the
goods needs to be shipped.
·
This field denotes to which port the
goods needs to be shipped.
Presentation:
·
Either delivery of documents against an
LC or the document itself.
Presenting
Bank: (Presentor)
·
In Documentary Credit or LC's - usually
an Exporter Bank who presents or forwards the Documents to Issuing Bank or
Opening Bank to seek a Payment or Acceptance.
·
In Documentary Collection's - usually
the Importer's bank. The presenting bank is the bank that presents the
documents to the buyer for payment or acceptance based on the collection
instructions sent by remitting Bank. A collecting bank may also become the
presenting bank in the buyer’s country.
Pre
Shipment Financing:
·
Finance for the seller to produce or
Purchase the material and labor necessary to fulfill the sales order. Most Bank
use Red Clause LC as Pre Shipment Financing.
Phytosanitary
Certificate: (Document)
·
Phytosanitary certificates are issued to
satisfy the import regulations of some countries. They indicate that a shipment
has been inspected and is free from harmful pests and plant diseases.
Proforma
Invoice: (Document)
·
A sample invoice provided by an Seller to
the Buyer prior to a sale or shipment of
Goods, informing the buyer of the price, kinds and quantities of goods to be
sent, and important specifications. (Weight, size and similar characteristics).
Promissory
Note:
·
A signed undertaking from one party
(drawer / promissor) addressed to another party (promisee) promising to pay a
certain sum of money at a specified future determinable date. Promissory notes
are negotiable instruments and perform more or less the same function as an accepted
bill of exchange.
Protest
( Protest Clause )
·
The Protest Clause is nothing but a
Collection instruction which will be given by the beneficiary or the Remitting
bank while forwarding the documents to the Collecting/Presenting Bank Stating that
“a Protest needs to be done on the buyer in case of non-payment or non-acceptance
of Documentary Collection on behalf of beneficiary”. It will be usually done
for a Charge. In Some cases the Collecting Bank themselves will ask the
Beneficiary whether they want the Collecting Bank to Protest against the Buyer
or Applicant. The below is an example.
Quality
Certificate: (Document)
·
Document which evidences the quality of
the goods.
·
Required by the importer to ensure that
the quality of goods supplied is as per the requirement.
Recourse:
·
The right to claim a refund from another
party that has handled a bill at an earlier stage.
Receivable
Financing: (Accounts
Receivable Financing )
·
Accounts receivable financing is a type
of asset-financing arrangement in which a company uses its receivables -
outstanding invoices or money owed by customers - as collateral in a financing
agreement.
·
Receivables Finance is another way to get
finance when a buyer issues only Open Accounts (Risk for Seller) and not Documentary
Credits, So Receivable Financing
protects the Seller against the buyer default or insolvency.
Receiving
Bank:
·
Receiving Bank is nothing but a
Beneficiary Bank.
Refinancing
(L/C Refinancing) (Subjective)
·
Refinancing takes place when the issuing
bank is not provided with reimbursement funds from the applicant, at time of
settlement. A third bank is still obliged to pay the beneficiary, but in this
case, allows the applicant to pay at a later fixed date, at an agreed
interest rate. This is either recognized as a loan from a third bank or a
Refinancing to the applicant.
Reimbursement
Authorization: (Also See Claiming Bank
and Reimbursing Bank)
·
Means an instruction or authorization,
independent of the credit, issued by an issuing bank to a reimbursing bank to
reimburse a claiming bank or, if so requested by the issuing bank, to accept
and pay a time draft drawn on the reimbursing bank.
Reimbursement
Claim:
·
Means a request for reimbursement from
the claiming bank to the reimbursing bank.
Sanction:
·
Sanction is nothing but Prohibition or
Penalty. According to International, National and Regional regulations,
Prohibition in Trade can be on an Individual, Group, Organization, Goods or
Services, Country or place ETC.
Shipper:
·
The person, usually the exporter, who
sends the goods.
Silent Confirmation:
(Outside of UCP and LC Terms)
·
Confirmation to a letter of credit is
added at the specific request of the issuing bank. A silent confirm is adding
confirmation to the letter of credit by the advising or any other bank at the
request of the beneficiary without the specific authorization and knowledge of
the issuing bank.
Sight Payment:
·
This type of payment indicates immediate
payment to the buyer.
Sight Payment with
Financing: ( Import Loans )
·
This is used for making a Sight Payment
for which a loan is also provided to the Importer.
·
Loan given to the importer to provide
liquidity for buying with sight payment to the exporter. Each loan must be
related to one specific import transaction and the term of the financing can
vary depending on the type of products imported and the requirements of the
importer.
Spot Transactions:
(Pls aslo see FORWARD TRANSACTIONS)
·
Foreign exchange transaction in which
foreign currency is bought at the current rate of exchange and delivered within
two business days (Actually 3 days, Current today, next day and the day after)
after the transaction date.
·
Also known as Spot Contracts.
Spread:
·
The difference between the buying (bid)
rate and the selling (offer) rate of any foreign currency for any particular
period.
Straight credit: (
Straight Letter of Credit)
·
A straight credit can only be paid at the
counters of the Issuing bank or a named drawee bank that has been authorized to
make payment.
Swift:
·
The Society
for Worldwide Interbank Financial Telecommunication (SWIFT) provides a
network that enables financial
institutions worldwide to send and receive
information about financial transactions in a secure, standardized and reliable
environment.
·
Swift is a provider of secure message
platform for financial institutions mainly for banks. Swift messages send
and received by banks in encrypted forms. As a result swift messages are
accepted as a valid and reliable way of communication between banks.
For example, an Issuing bank sends a swift message (MT700) to an Advising bank
in order to inform issuance of a documentary credit. Similarly Advising banks
send their acknowledgement (MT730) via a swift message.
·
Swift is also known as BIC (Business identifier code or Bank
Identification code)
·
IBAN
(International Bank Account Number) is different from SWIFT, it is used to
identify an Individual Account and Whereas Swift is to identify a Specific
Bank.
·
All SWIFT messages include the literal
"MT" (Message Type). This
is followed by a three-digit number that denotes the message category, group
and type. Consider the following example, which is an order to buy or sell via
a third party:
§
Example: MT732.
Telegraphic Transfer:
( T/T remittance )
·
A telegraphic Transfer (TT)
is an electronic method of transferring funds; it is utilized primarily for
overseas wire transactions. Telegraphic Transfers are also known as Telex
Transfers
Third party L/C:
·
Third party L/C may be issued at the
request of a borrowing customer using his facilities after obtaining approval
of the appropriate credit authority. In such case, the application must be
signed by the borrowing customer, together with a letter from the customer
requesting for issuance of a L/C in the name of a third party (usually the
third party is same group of the applicant), and a letter of no objection and
awareness must also be obtained from the third party, whose signature(s) must
be verified by their banker. To proceed
with a Third party L/C, approval to be obtained from the Bank. Banks Consent is
Mandatory.
Tolerance:
·
This field is related to the documentary
credit amount or the Quantity of Goods.
·
When a letter of credit has a tolerance
of +/-10%, it means that the letter of credit can be drawn for 10%
more or less than the face value (Amount) of the letter of credit, and
10% more or less of the Quantity of goods can be shipped. This is
very common in goods where exact units cannot be specified.
·
Sometimes the Tolerance can only be on
the face value (Amount). This will be given clearly and in detail in Additional
Conditions field in Letter of Credit.
·
If Tolerance is on Amount, LC Limit is to
be calculated accordingly. For Example:
If the LC is issued for USD 100,000 and
the Tolerance is +10 Percent, then the Limit to be taken as USD 110,000. If the
Tolerance is - 10 Percent then the Limit will be taken for the LC amount. It is
very subjective; Limit calculation may differ from bank to bank on Tolerance.
Tracer:
·
Tracers can be both External Tracers and Internal
Tracers. Most Banks use it only for External Purpose. Tracer is something like sending
a remainder for answers or payment or acceptance of a transaction, tracing a
payment or acceptance of a transaction is known as External Tracer and giving
information to the Customers Internal Tracer. Tracers in External are sent as a
Swift MT420 in Collections.
Trade
Loans:
·
Trade loans are flexible, short-term
borrowing facilities, linked to specific import or export transactions.
·
They are available for firms regardless
of the method they use to trade, whether open account, collections or
documentary credit basis. Trade loans help fund trade transactions throughout a
firm’s trading cycle, improving its cash flow.
·
Trade loans are an important and
well-established trade finance technique. Particularly suited to wholesalers
and manufacturers, they can be used for regular or one-off purchases of goods
and raw materials.
Transferee:
·
A party (2nd beneficiary) to whom a
transferable credit is transferred in whole or in a part.
Transferor:
·
A party (1st beneficiary) at whose
request a transferable credit is transferred to a second beneficiary in whole
or in a part.
Transshipment:
·
Transshipment is the process of unloading
from one form of transport (vessel, aircraft or truck) and reloading to another
form of transport during the course of journey of the goods from the port of
shipment to the port of destination indicated in the letter of credit.
·
If the LC is silent on Transshipment,
transshipment is permitted.
·
If transshipment is to be prohibited, the
LC should clearly state so.
Truck Receipt /
Consignment / Delivery Note / Railway Receipt: (Document)
·
Document evidencing shipment of goods by
truck or rail or other means of land transport.
Trust LC: ( Documents
Under Trust ) ( Trust Release )
·
When a discrepant document is received
under Import LC, the Bank, at its discretion (considering the profile of the
importer), may release the document prior to payment or acceptance of the
document by the importer. This is called releasing the document under Trust.
The same can be done in Documentary
Collections also.
Trust Receipts: ( LTR
– Loan against Trust Receipts )
·
Trust Receipt (TR) is a type of
short-term import loan to provide the buyer with financing to settle goods
imported under Letter of Credit where title of goods is held by the bank.
·
Under a TR arrangement, the Bank retains
title to the goods but allows the buyer to take possession of the goods on
trust for resale before paying the Bank on TR due date. TR financing is
applicable to goods imported under Documentary Credit.
·
For Documentary Collection, we offer
import loans against Import Invoice Financing is a short term loan applicable
to buyer who trade on open account basis.
·
Trust Receipt is also known as Import
Invoice Financing, LTR or LATR
Usance Payable At
Sight ( UPAS ) Letter of Credit
·
The business world is constantly looking
for favorable payment terms in international trade. Everybody wants to position
oneself in upper-side. UPAS L/C is such a mechanism to create win-win situation
for all the parties involved in the international trade; buyer-seller-banker.
·
One of the biggest problem in trade
finance is the buyer always want to have longer credit tenor, while the seller
prefer to give shorter credit tenor to the buyer. These differences have given
financial institution an idea to develop a letter of credit that could
accommodate both interest through UPAS L/C.
·
UPAS L/C, Usance Payable at Sight, is a
derivative from the standard L/C type (Sight L/C & Usance L/C). It is
actually the combination between Sight L/C and Usance L/C.
·
So Beneficiary (Seller) gets the Payment
at Sight (Bank will pay the Beneficiary at Sight and Bank provides Financing to
Applicant - Buyer)
whereas Applicant has to make the Payment or settlement at
the end of Usance to the banks (Future agreed Date) and pay the Interest amount
or service charge for the Usance period to the bank.
Visible and Invisible
Trade:
·
Visible trade is the - import and export
of physical goods.
·
Invisible trade is the import and export
of services (software, BPO, technology, design, architect's fees, insurance,
banking, transport etc.)
Weight List:
(Document)
·
Indicates the total gross and net weight
of the goods.
·
Means that the Beneficiary bank (Usually
Confirming Bank) will not be able to recover the money paid to the beneficiary
in case the Issuing bank does not pay.
With Recourse:
·
Means that the Beneficiary bank (Usually
Negotiating Bank) will be able to recover the money paid to the beneficiary in
case the Issuing bank does not pay.
