Trade Finance Glossary

Trade Finance Glossary

AcceptanceThe act of giving a written undertaking on the face of a usance bill of exchangeto pay a stated sum on the maturity date indicated by the drawee of the bill,(usually in exchange for documents of title to goods shipped on D/A terms).Acceptance CreditA documentary credit which requires the beneficiary to draw a usance bill forsubsequent acceptance by the issuing bank or the advising bank or any otherbank as the credit stipulates.Accepting bankThe bank which accepts a bill of exchange drawn on it under a documentarycredit.Accommodation BillIn the context of fraud, a bill drawn without a genuine underlying commercialtransaction.AccounteeAnother name for the applicant/opener of a documentary credit i.e. the importer= the person for whose account the transaction is made.Advice of FateThe Collecting Bank informs the Remitting Bank of non- payment/nonacceptanceor (for D/A bills) of acceptance and the bill maturity date.Advising bankThe bank by which the terms and conditions of the documentary credit areconveyed to the beneficiary. It is usually a bank in the beneficiary’s country.AmendmentAn alteration to the terms and conditions of the documentary credit. Followingthe applicant’s request, the amendment originates from the issuing bank and isadvised to the beneficiary by the advising bank. Irrevocable credits (almost allcredits are irrevocable) cannot be amended unless the beneficiary agrees.ApplicantThe party, usually the importer, who applies to his bank to issue a documentarycredit. Also sometimes referred to as the opener or accountee.AvaliseThe act by a bank in guaranteeing payment of a bill of exchange or promissorynote by endorsing the reverse with the words "good per aval" and signed by thebank, or by the issuance of a separate guarantee.Back-to-Back CreditA credit issued against the security back of another credit (master credit) on theunderstanding that reimbursement will stem from documents eventuallypresented under the first credit (master credit) issued. It follows therefore thateach side of a B/B transaction covers the shipment of the same goods.BeneficiaryThe party to whom a documentary credit is addressed and who will receivepayment under it if he complies with its terms.Bill for CollectionDocument(s) or cheque submitted through a bank for collection of payment fromthe drawee.Bill of ExchangeAn unconditional order in writing, addressed by one person to another, signedby the person giving it, requiring the person to whom it is addressed to pay ondemand or at fixed or determinable future time a sum certain in money to or tothe order of a specified person, or to bearer.It is usually referred to in documentary credits as a draft.Bill of LadingA document demonstrating, among other things, ownership of goods.Bill ReceivableBills which are financed by the receiving branch, whether drawn under a DC ornot, are treated as BRs by both the remitting branch and the receiving branch.Blank EndorsedWhen a bill of lading is made out to order or shipper order and the shipper hassigned on the back of it, it is said to be blank endorsed. The bill of lading thenbecomes a bearer instrument and the holder can present it to the shippingcompany to take delivery of the goods.CarrierPerson or company undertaking, for hire, the conveyance of goods e.g. shippingcompany.Case of NeedAgent nominated by a principal, to whom the collecting bank may refer inspecified circumstances concerning collections.CleanUsed to describe a draft/cheque with no shipping documents (Collectionstransactions), or to describe a bill of lading without clauses that expresslydeclare a defective condition of the goods or the packing.Clean Bill PurchasedA collection bill purchased with no shipping documents.Clean Bill ReceivableBR (Bill Receivable) with no shipping documents. The term is more often usedfor non-trade bills such as travellers cheques.Clean CollectionA draft with no documents attached.Clean Import LoanA loan granted to an importer for payment of import bills, without the Bankhaving any claim to the goods.Collecting BankThe bank, normally in the territory of the drawee/importer, which acts as theagent of the remitting bank in collecting proceeds of a clean or documentary bill.Collected proceeds are remitted back to the remitting bank, for payment to theircustomer.Collection/Collection BasisA general term used in the TS FIM to describe a non-financed non-DC bill.Collection OrderForm submitted, with documents, to the Remitting/Negotiating Bank by anexporter with their instructions.Confirming bankA bank that undertakes on its own responsibility to pay, undertake a deferredpayment obligation, accept or negotiate under a documentary credit issued byanother bank. The confirming bank is usually the advising bank.ConsigneePerson, company or bank to whom goods are addressed.ConsignorAlso known as the shipper, the person or company sending goods.Contingent LiabilityA liability that arises only under specified conditions, e.g. when a bank opens aDC it incurs an obligation to make a future payment on condition that the termsare fully met.DC BillsBills drawn under documentary credits.Deferred Payment CreditA DC which allows the nomination of a bank, or the issuing bank to effectpayment against stipulated documents at a maturity date as specified ordeterminable from the wording of the credit.DemurrageA charge made by a shipping company or a port authority for failure to load orremove goods within the time allowed.DiscountingAct of purchasing an accepted usance bill of exchange at an amount less thanthe face value.DiscrepancyAny deviation from the terms and conditions of a DC, or the documentspresented thereunder, or any inconsistency between the documents themselves.DishonourNon-payment or non-acceptance.Documentary CreditA conditional undertaking by a bank to make payment, often abbreviated tocredit. More precisely, it is a written undertaking by a bank (issuing bank) givento the seller (beneficiary) at the request of the buyer (applicant) to pay a sum ofmoney against presentation of documents complying with the terms of the creditwithin a set time limit.DocumentsThe characteristics and importance of the various documents associated withImport/Export operations are explained and illustrated in Deciding onDocuments.Documents Against AcceptanceInstruction for commercial documents to be released to the drawee onacceptance of the Bill of Exchange.Documents Against PaymentInstruction for documents to be released to the drawee only on payment.Documents of TitleDocuments that give their owner the right to the goods, i.e. Bill of Lading.DraftBill of exchange issued by an exporter and submitted to his bank for collection,or under a DC - usually submitted with attached shipping documents - not to beconfused with a bankers draft which is sometimes used as a vehicle forreimbursement.DraweeParty on whom a bill is drawn and the one to whom presentation is to be madeaccording to the collection order - the importer (NB: for DC bills, the drawee isusually the DC issuing bank).DrawerThe exporter, who draws the Bill of Exchange/draft which in itself is a claim forpayment.Due DateMaturity date for payment.EndorsementSigning (a bill of exchange or bill of lading) on the reverse to transfer title toanother party.Expiry DateLatest date, usually in the country of the beneficiary, on whichnegotiation/payment of a DC can take place.Financed BillsBills sent on collection in which the remitting bank has a financial interest.Foreign Bill PurchasedA bill remitted to a correspondent bank in which the remitting branch isfinancing the exporter.Forward Exchange ContractContract between the Bank and its customer to buy/sell a fixed amount offoreign currency at a future date at a specified rate. This could be for acustomer to make payment under a DC or to sell the proceeds received from anexport negotiation.FreightGoods OR the cost of transporting goods.General AverageLoss which is the result of a sacrifice voluntarily made or an expense incurred;for the sole purpose of saving a ship and its cargo in face of a common danger(e.g. jettison of cargo to lighten a ship in distress). The loss is borneproportionately by ship and cargo owners according to their respective interestsin the voyage.Gross WeightThe weight of the merchandise in its shipping form, i.e. including all itspackaging.HonourTo pay or accept a bill of exchange.Import LicenceA permit issued by the importing country’s authorities in respect of goodssubject to import licensing restrictions.IndemnityAlso known as Letter of Guarantee (L/G), it is an undertaking given in respect ofdiscrepancies in documents presented under a credit. The beneficiary who issuesthe indemnity is primarily liable to repay funds received from the negotiatingbank in settlement under the credit, if the negotiating bank cannot obtainreimbursement from the issuing bank as a result of documents being rejected bythe applicant.Inherent ViceThe propensity of a commodity to self-destruction which gives rise to a highinsurance risk, therefore cover is given only after payment of an additionalpremium (e.g. fruit rots, coal-dust spontaneously ignites).Irrevocable DCConstitutes a definite undertaking of the issuing bank and the confirming bank, ifany, to honour the credit provided the terms of the credit are observed. It maybe advised to the beneficiary without engagement by the advising bank, andcannot be amended or cancelled unless the issuing bank, the confirming bankand the beneficiary agree.Issuing BankThe bank that issues the documentary credit and acts for the applicant (usuallythe importer).Letter of CreditAmerican term for documentary credit. In the United States, the letters DC canoften be confused for documentary collection.Letter of HypothecationA promise to hold goods as security taken from customers who are grantedloans against goods imported on a collection basis.Master CreditIn back-to-back operations, the original export credit against which the secondcredit is issued.MaturityThe date on which a usance bill of exchange becomes due for payment.Negotiable/Non-NegotiableUsually used with regard to Bills of Lading: a negotiable BL is a valid documentof title, while a non-negotiable BL is not - the beneficiary of a DC (the exporter)may send the importer a non-negotiable BL for information.NegotiationThe purchase of a bill of exchange or documents which under the credit termsthe issuing bank has undertaken to pay. Unlike payment, Negotiation is withrecourse to the Drawer/Beneficiary. Unless otherwise indicated the term is usedin its generic sense in this manual to describe any method of settlement, orgiving value under documentary credits.Negotiating BankThe bank which negotiates under a documentary credit. It may be a banknominated by the issuing bank or any other authorised under the credit.Net WeightThe weight of the merchandise before any packaging.Non-DC BillA set of documents with or without a bill of exchange relating to a tradetransaction, not drawn under a DC, financed by a Group Office.Non-Financed BillsBills sent on collection in which the remitting branch has no financial interest.Notify PartyMost contracts involving transport overseas specify a party who is to be advisedof the arrival of the goods. This may be the consignee himself or an agent andhis name and address must appear on the transport document.NotingThe first stage in protest of a dishonoured bill: if instructed to protest for nonpayment/non- acceptance, the collecting bank must send the bill to a notarypublic who will represent it to the drawee on the same day it was refused, or thenext business day. If the drawee still refuses the bill the notary public notes onthe bill: the amount of his charges, the date and his initials. The reason forrefusal is shown on a note attached to the bill. The bill is then protested.OpenerSee Applicant.Opening BankSee Issuing Bank.Order (To)The phrase To Order is sometimes shown on Bills of Lading against consignee:this means that the Bill of Lading must be endorsed in blank by the shipper (i.e.not to any particular named party which makes it bearer document and itbecomes transferable by delivery).Packing CreditA loan given to the beneficiary by the bank to enable him to purchase rawmaterials. The beneficiary is usually requested to deposit the DC with the bankas security.Past DueBill or loan that has not been paid on the maturity date/due date.Paying BankThe bank which is to pay the proceeds under a payment DC. It can be theissuing bank itself or a bank nominated by it, usually the advising/confirmingbank.Perils of the SeasThey are accidents or casualties of the sea. The ordinary actions of the windsand waves are not included. Heavy or tempestuous weather on a voyage is ofsufficient violence to constitute a peril of the sea.Power of AttorneyAuthority given to one party to act for another.PresentationAct of requesting the importer’s payment/acceptance of an import bill.Presenting BankThe bank that requests payment of a collection bill - may be the Collecting Bankor its nominated branch or local correspondent, which is better placed to contactthe importer.PrincipalThe exporter in collection transactions, being the initiator of the transaction,whose instructions are followed at all stages (may be used to refer to anycustomer who initiates a transaction e.g. the issuer of a DC).Promissory NoteA signed statement containing a written promise to pay a stated sum tospecified person at a specified date or on demand.ProtestThe formal representation of a dishonoured bill of exchange: the bill is presentedby a notary public to the drawee - if refused again, it is noted” - see noting. Thenotary public then issues a formal protest, an official certificate that the bill hasbeen refused: the drawer can use this certificate to sue the drawee in court.PurchaseUnless otherwise indicated the term is used in its generic sense to describe theprocess where an export department advances the proceeds of a non-DC bill toa customer.RecourseThe right to claim back a payment made.Red Clause CreditA credit with a clause which authorises the advising bank to make an advancepayment to the beneficiary.Reimbursing BankThe bank nominated by the DC issuing bank that will pay the value of the DC tothe negotiating/paying bank.Remitting BankThe bank that acts on behalf of the drawer/exporter in handling documentsunder DC or non-DC bills. It sends documents to a receiving or collecting bankfor payment by the importer.RetirementThe act of paying or settling an outstanding bill or import loan; i.e. payment bythe importer to the Bank.Revocable DCA documentary credit which may be amended or cancelled at any time withoutprior notice to the beneficiary.Revolving CreditA credit automatically reinstated after each drawing or upon receipt ofauthorisation from the DC issuing bank, with limits as to the duration of thefacility and as to the (cumulative or non-cumulative) amount involved for eachdrawing.ScheduleThe Remitting/Negotiating Bank's letter covering a bill sent to theCollecting/Issuing Bank, which lists the documents attached and gives collectionand/or payment instructions.Self-LiquidatingA transaction is said to be self-liquidating when there is a known source of fundsavailable for its settlement on due date.SettlementPayment, acceptance or negotiation under a documentary credit. Seenegotiation.Shipment DateThe date inserted on the bills of lading evidencing goods received on board isregarded for documentary credit purposes as being the date of shipment.ShipperSee ConsignorShipping GuaranteeGuarantees of this nature are required to enable customers to obtain goodsbefore the arrival of the documents of title, and are issued to the shippingcompanies by the Bank against an undertaking to forward the bills of ladingwhen they are received. The Bank normally take 100% cash margin against thevalue of the goods if the customer does not have T/R facility.SightUnder a sight documentary credit a Group Office should effect settlementimmediately if it is satisfied with the documents presented (unless the terms ofthe sight credit are in some way modified by its contents). Banks are allowed areasonable time to check documents.SnagsIrregular bills; import and export.Status ReportProduced by a bank's TCI department or a credit information bureau, givingdetails of the creditworthiness and business background of traders andmanufacturers.SubstitutionThe act whereby the prime beneficiary substitutes his own documents i.e.invoices and drafts, in back-to-back and transferable credit operations prior tonegotiation of the master credits.TenorThe period of time that must pass before a bill of exchange or promissory notebecomes due for payment. The date must be determinable from the face of thebill or note.TermsStipulates the conditions of the documentary credit, the method for the dispatchof the goods, the basis on which the payment amount is fixed (e.g. FOB, CIF),and the documents required under the credit.Trade and Credit InformationA bank department that prepares and distributes status reports on its owncustomers, and maintains records of traders and manufacturers with whom itscustomers deal.Transferable CreditPermits the beneficiary to transfer all or some of the rights and obligations underthe credit to a second beneficiary or beneficiaries.TransfereeA party (2nd beneficiary) to whom a transferable credit is transferred in whole orin part.TransferorA party (1st beneficiary) at whose request a transferable credit is transferred toa second beneficiary in whole or in part.Transport DocumentsFormerly and still usually referred to as shipping documents, the documentswhich demonstrate that goods have been dispatched from one place to another.UsanceIn contrast to a sight credit, a usance credit is one where the bill (or draft) isintended to be payable at a date later than that of the presentation ofdocuments (See Tenor).WaiveTo relinquish a right: used in collections, with BC charges and/or interest to becollected from the drawee. These can be waived in certain circumstances as setout in URC 522.