Glossary of Terms

Glossary of International Trade Terms

A

ACCEPTANCE
Under a Letter of Credit, an acceptance drawn on and accepted by a bank that thereby becomes primarily liable to pay on the maturity date.
ADVISING BANK UNDER LETTERS OF CREDIT
The bank which receives a Letter of Credit or amendment to a Letter of Credit from the issuing bank [buyer’s bank] and forwards it to the beneficiary [seller/exporter] of the credit.
AES EEI
see "Shipper`s Export Declaration" in this glossary
AFFILIATES
Business entities that have common ownership, common management, or contractual relationships that give one control over the other.
AGENT BANK
Bank acting for a foreign bank.
AGGREGATE LIMIT OF LIABILITY
The total amount of the insurer’s liability under an insurance policy.
AREA CONTROL LIST (ACL) (CANADA)
Refer to Foreign Affairs and International Trade Canada website| www.international.gc.ca
ASSIGNEE
A financing institution or individual or company designated by an insured exporter to receive all or part of the policy proceeds. The assignment must be acknowledged by the insured. An assignee has no greater rights than the insured under a policy.
ASSIGNMENT
Transfer of interest and benefits of a financial instrument to a third party.
ASSIGNMENT OF PROCEEDS FROM A LETTER OF CREDIT
The beneficiary of a Letter of Credit may irrevocably assign, to a party not directly named in the Letter of Credit, a portion of the proceeds of the L/C. While the assignment assures the assignee that he/she receives a portion of the proceeds under the L/C, it does not guarantee payment unless the shipment is made and all terms and conditions of the original L/C have been satisfied by the beneficiary. An assignment is possible regardless of whether the letter of credit is transferable.
AT SIGHT
Terms that designate payment upon demand. Under a Letter of Credit or draft it means payment is to be made upon presentation of certain documents [Letter of Credit] or presentation of draft.
ATTESTATION
To affirm to be correct, true, or genuine. Attestation is provided by government officials in many countries.
AVAILABILITY
The additional funds that the Lender will advance under the terms of the credit facility. The amount is often the difference between the loan commitment amount and the outstanding balance of the credit facility. In most cases, the terms of the credit agreement limit the amount available if the commitment amount is greater than the borrowing base.
AVAL
The guarantee of an individual or a financial institution on a financial instrument which in effect makes the guarantor the primary obligor in the eyes of all subsequent holders of the financial instrument.

B

BACK-TO-BACK LETTERS OF CREDIT
A beneficiary of an existing Letter of Credit opens up a new letter of credit on the basis of the letter of credit he/she has received.
BANK RELEASE
A document issued by a bank, after it has been paid or given an acceptance, giving authority to a person to take delivery of the goods.
BANKERS’ ACCEPTANCE
An acceptance drawn on and accepted by a bank that thereby becomes primarily liable to pay at the maturity date.
BENEFICIARY
The individual in whose favor a Letter of Credit is drawn. In a typical export transaction, the U.S. exporter/supplier is the beneficiary.
BILL OF EXCHANGE
An unqualified written order directing that a precise amount of money be paid to a specific person. The most common example of a bill of exchange is a draft.
BILL OF LADING
A document issued by a transport company, which acknowledges the receipt of specified goods for transportation to a specific place. It also serves as the contract between the shipper [supplier/buyer] and carrier.
BILL OF LADING DATE
A specific date a bill of lading is issued.
BLOCK & BRACE
A type of Cargo Securing or Load securing, for transportation.
BROKER
An individual or firm who acts as agent for others in purchasing and selling. A broker may or may not charge for his/her services.
BUYER, NON-SOVEREIGN PUBLIC
A government-owned or controlled entity - such as a development bank, province or municipality -that does not carry the full faith and credit of its government and whose obligations are not guaranteed by a sovereign public agency.
BUYER, PRIVATE
A foreign buyer that is not a sovereign public buyer.
BUYER, SOVEREIGN PUBLIC
A ministry of finance, central bank or other government department, agency or office whose obligations are guaranteed by the ministry of finance, central bank, or are otherwise determined to carry the full faith and credit of its government.

C

CARGO AGENT
An agent appointed by an airline or shipping line to solicit and process international air and ocean freight for shipments. Cargo agents are paid commissions by the airline or shipping line.
CARRIAGE AND INSURANCE PAID TO [CIP]
The seller/exporter has the same obligations as under Carriage Paid To but with the addition that the seller has to procure cargo insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. Under the CIP Incoterms® 2020 rule the seller is required to obtain expanded insurance cover complying with Institute Cargo Clauses (A), rather than with the limited coverage under Institute Cargo Clauses (C) which is given under Incoterms CIF. It is, still open to the parties to agree on a lower level of cover. The CIP term requires the seller/exporter to clear the goods for export. This term may be used for any mode of transport including multimodal transport.
CARRIAGE PAID TO [CPT]
The seller/exporter pays the freight for the carriage of the goods to the named destination. The risk or loss of/or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier. The CPT term requires the seller to clear the goods for export. This term may be used for any mode of transport including multimodal transport.
CARRIER
An individual or firm which deals in transporting or conveying passengers or goods.
CASH AGAINST DOCUMENTS
Transactions where documents are sent to a third party, such as a bank or agent, with instructions not to release the documents, so that the importer/buyer is unable to take possession until the third party has received payment.
CASH IN ADVANCE [CIA]
The seller/exporter requires payment from the buyer/importer prior to shipment of goods or services.
CASH PAYMENT
A specific quantity of the invoice or contract price, which the importer/buyer must pay the exporter/supplier prior to shipment of the goods or services.
CERTIFICATE OF INSPECTION
A document certifying that merchandise was in good condition at the time of inspection. Pre-shipment inspection is often a requirement for importation of goods into a country.
CERTIFICATE OF ORIGIN
A written statement attesting to the country of origin of goods.
CLEAN BILL OF LADING
A bill of lading acknowledged by the carrier for goods received “in apparent good condition” without damages or other irregularities.
CLEAN REPORT OF FINDINGS (CRF)
CRF A report issued by an inspection firm, indicating that price has been verified, that the goods have been inspected prior to shipment, and that both conform to buyer specifications.
CMR
International Consignment Note for International Journeys by Road. (Road Transport)
COLLECTION
The process of presenting a negotiable instrument to the maker for payment.
COMMERCIAL RISK
Any risk of default not defined as political risk. Commercial risk may result from deterioration in a buyer’s/importer’s market, fluctuation in demand, buyer’s insolvency, etc.
COMPLIANCE CERTIFICATIONS
The Borrower’s statement certifying its adherence to the terms of the loan agreement during the stated period. The company’s principal financial officer usually completes the certificate. If the Borrower is in compliance with the terms of the loan agreement [no event of default has occurred], the principal financial officer will attest accordingly. Supporting data is usually required to document the assertion.
CONFIRMING BANK UNDER LETTERS OF CREDIT
Confirmation is a process by which a bank adds its engagement to that of the opening bank. The confirming bank assumes the liability to pay under the Letter of Credit so long as the terms and conditions of the Letter of Credit have been met.
CONSIGNEE
An individual or firm to who merchandise has been consigned.
CONSIGNMENT
The buyer acts as agent for the seller/exporter, selling goods for “commission” and remitting the net proceeds to the seller as the goods are sold. The Seller retains ownership of the goods until they are sold by the agent and also carries all the financial burden and risk.
CONTRA-ACCOUNTS
Contra-Accounts arise when a borrower has both accounts receivable and accounts payable with the same entity because the party is both a customer and a supplier of the Borrower. These accounts are usually considered ineligible collateral.
CONVERTIBLE CURRENCY
Currency that can be easily exchanged, bought/sold for other currency.
COST AND FREIGHT [CFR]
The seller/exporter must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. The CFR term requires the seller to clear the goods for export. This term can only be used for sea and inland waterway transport. When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the CPT term is more appropriate to use.
COST, INSURANCE AND FREIGHT [CIF]
The seller/exporter has the same obligations as under CFR but with the addition that he has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer/importer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage. The CIF term requires the seller/exporter to clear the goods for export. This term can only be used for sea and inland waterway transport. When the ship’s rail serves no practical purposes such as in the case of roll-on/roll-off or container traffic, the CIP term is more appropriate to use.
COSULARIZED
Consularization is the act of authenticating any legal document by the consul office
CREDIT RISK
Credit risk is the current and prospective risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract with the Lender or otherwise fail to perform as agreed. In trade finance, many transactions are self-liquidating or supported by Letters of Credit, insurance and guarantees.

D

DEFERRED PAYMENT LETTER OF CREDIT (USANCE)
Sometimes referred to as a Usance Letter of Credit. Payment under the Letter of Credit is made a number of days after shipment/presentation of documents after a period specified in the Letter of Credit.
DELIVERED AT FRONTIER [DAF]

An old Incoterm. The seller/exporter fulfills its obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customs border of the adjoining country. The term “frontier” may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term. The term is primarily intended to be used when goods are to be carried by rail or road, but it may be used for any mode of transport. (This term was replaced by Delivered at Place (DAP) in Incoterms 2010.)

DELIVERED AT PLACE UNLOADED [DPU]
This is essentially a change in title from DAT (Delivered at Terminal) to DPU. The change was made in Incoterms 2020. "Place Unloaded" can be a terminal, a quay, a container yard, a warehouse etc. DPU Incoterms® rule requires that the seller unload the goods at destination.
DELIVERED AT PLACE [DAP]
Term introduced in Incoterms 2010. Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. In 2010 DAP replaced Delivered at Frontier (DAF) and Delivered Duty Unpaid (DDU).
DELIVERED AT TERMINAL [DAT]
Term introduced in Incoterms 2010 and renamed in Incoterms 2020 to DPU (Delivered at Place Unloaded). Seller bears cost, risk and responsibility until goods are delivered (unloaded) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaced Delivered Ex Quay (DEQ) and Delivered Ex Ship (DES) incoterms in 2010. DAT Incoterm was renamed to DPU (Delivered at Place Unloaded) in 2020.
DELIVERED DUTY PAID [DDP]
The seller/exporter fulfills its obligation to deliver when the goods have been made available at the named place in the country of importation. The seller/exporter has to bear the costs and risks, including duties, taxes and other charges of delivering the goods thereto, cleared for importation. Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller/exporter is unable directly or indirectly to obtain the import license. This term may be used irrespective of the mode of transport.
DELIVERED DUTY UNPAID [DDU]
The seller/exporter fulfills its obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation as well as the costs and risks of carrying out customs formalities). The buyer/importer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time. This term may be used irrespective of the mode of transport. (This term was replaced by Delivered at Place (DAP) in Incoterms 2010.)
DELIVERED EX QUAY (DUTY PAID) [DEQ]
The seller/exporter fulfills its obligation to deliver when its has made the goods available to the buyer on the quay (wharf) at the named port of destination, cleared for importation. The seller/exporter has to bear all risks and costs including duties, taxes and other charges of delivering the goods thereto. This term should not be used if the seller/exporter is unable directly or indirectly to obtain the import license. If the parties wish the buyer to clear the goods for importation and pay the duty the words “duty unpaid” should be used instead of “duty paid”. This term can only be used for sea or inland waterway transport. (This term was replaced by Delivered at Terminal (DAT) in Incoterms 2010. DAT was renamed DPU in Incoterms 2020)
DELIVERED EX SHIP [DES]
The seller/exporter fulfills its obligation to deliver when the goods have been made available to the buyer on board the ship uncleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination. This term can only be used for sea or inland waterway transport. . (This term was replaced by Delivered at Terminal (DAT) in Incoterms 2010. DAT was renamed DPU in Incoterms 2020)
DELIVERY
Delivery is a concept in Incoterms and is used to indicate the point at which the risk of ‘loss of’ or ‘damage to’ the goods passes from the seller to the buyer.
DIRECT COLLECTIONS
A method of obtaining payment for goods where the exporter/seller ships the goods to the buyer/importer but sends the collection directly to the importer/buyer designating payment through a specific financial institution.
DISCRETIONARY CREDIT LIMIT [DCL]
The designated maximum amount of credit per foreign buyer on which an insured may commit the insurer without prior approval of the insurer.
DOCUMENTARY COLLECTIONS
Is a method of obtaining payment for goods or services where the exporter/seller ships the goods to the buyer/importer but instructs his/her bank to collect payment in exchange for the documents involved in the shipment [invoice, bill of lading, etc.]. Banks act only in a fiduciary capacity and do not make any commitment to pay the exporter/seller themselves. Documentary collections are subject to the Uniform Rules for Collection i.e. URC Brochure No. 522. There are two types of documentary collections 1. DOCUMENTS AGAINST PAYMENT (D/P) and 2. DOCUMENTS AGAINST ACCEPTANCE (D/A)
DOCUMENTS AGAINST ACCEPTANCE (D/A)
The documents are surrendered [by the bank] to the importer/buyer after the importer/buyer has accepted the accompanying draft, acknowledging the obligation to pay at a future date. See DOCUMENTARY COLLECTIONS.
DOCUMENTS AGAINST PAYMENT (D/P)
A sight draft to which title documents are attached. The documents are surrendered to the importer/buyer after he/she has paid the accompanying draft. See DOCUMENTARY COLLECTIONS.
DRAFT
A written demand signed by the exporter/supplier which requires the importer/buyer or the importer/buyer’s bank to pay on presentation or at a fixed future time a sum certain in money to the order of the payee which may be the exporter/supplier or the exporter/supplier’s bank. SIGHT DRAFT is payable when presented. TIME DRAFTS [also called Usance drafts] are payable at a future fixed date or determinable [30, 60, 90 days, etc.] date.

E

EEI AES
see "Shipper`s Export Declaration" in this glossary
EX WORKS [EXW]
“Ex works” means that the seller fulfills his obligation to deliver when he has made the goods available at his premises (i.e. works, factory, warehouse, etc.) to the buyer. In particular, he is not responsible for loading the goods on the vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. This term thus represents the minimum obligation for the seller. This term should not be used when the buyer cannot carry out directly or indirectly the export formalities. In such circumstances, the FCA term should be used
EXPORT CREDIT INSURANCE
Insurance coverage for sellers/exporters, when they have a sale on other than L/C or CIA terms, to protect against commercial [non-payment] and political [war, insurrection, confiscation] non-payment in an international sale.
EXPORT FINANCING HOUSE
A company that purchases an exporter’s foreign receivables on a non-recourse basis upon presentation of proper documentation. It then organizes export arrangements and provides front-end financing to the foreign-buyer.
EXPORT MANAGEMENT COMPANY
A private business which serves as the export department for several manufacturers, soliciting and transacting export business on behalf of its clients in return for a commission or salary.
EXPORT TRADING COMPANY
A business unit operated principally for the purpose of exporting goods and services, or of providing export related services to other companies. An export trading company can import, barter, arrange sales between third countries as well as export.
EXPORTER IDENTIFICATION NUMBER
An identification number required on the Shipper’s Export Declaration for all export shipments. US corporations may use their federal Employer Identification Number issued by the IRS.

F

FACTOR
An individual or firm that purchases another individual or firm’s account receivables at less than the receivables value and collects the full value. This is an arrangement in which a company shortens its cash cycle by selling its accounts receivable with or without recourse to a third party known as a “factor”.
FORFAITING
The purchase of trade obligations falling due at some future date without recourse to any previous holder of the obligation. Under a typical arrangement, an exporter/supplier receives immediate cash by discounting promissory notes or trade receivables on a “without recourse” basis to a specialized finance firm called a “forfaiter”.
FORMULA
A calculation to determine the borrowing base in which a margin or advance rate is applied to each type of collateral.
FORWARD TRADING TRANSACTIONS
Hedging currency risks with forward transaction is a relatively easy to implement hedging strategy. In this, the currency payment or receipt is locked in at a particular exchange rate for a pre-specified rate in the future, irrespective of what the actual market exchange rate at that time is. The idea behind forward contracts is that as the exchange rate is locked on both sides, both, the creditor and the lender do not have to worry about fluctuations in the income and expenditure respectively.
FREE ALONGSIDE SHIP [FAS]
The seller fulfills his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the buyer to clear the goods for export. It should not be used when the buyer cannot carry out directly the export formalities. This term can only be used for sea or inland waterway transport.
FREE CARRIER [FCA]
“Free Carrier” means that the seller fulfills his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods in to his charge. When, according to commercial practice, the seller’s assistance is required in making the contract with the carrier (such as in rail or air transport) the seller may act at the buyer’s risk and expense. The term may be used for any mode of transport, including multimodal transport.
FREE ON BOARD [FOB]
The seller fulfills his obligation to deliver when the goods have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can only be used for sea or inland waterway transport. When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use.

H

HEDGING
Hedging currency risk is the act of reducing or negating the risks that arise out of changes in the prices of one currency against another. In simpler words, if you had a certain amount payable in dollars in two months’ time and had planned accordingly for it, only to find out that the dollar has appreciated with respect to your home currency, you would be shelling out much more when the payable actually became due. The strategies that help in countering this risk of unexpected increase in payables in decrease in receivables come under the "hedging currency risks" purview. Know more on foreign exchange hedging. Also refer Forward Trading

I

IMPORTER
The individual, firm or legal entity that, in the course of trade, brings articles of trade from a foreign source into a domestic market.
INCOTERMS ®

Trade terms published by the International Chamber of Commerce which define the respective duties of the exporter/supplier and importer/buyer in international transactions. The 11 Incoterms as per Incoterms® 2020 are| Ex Works (EXW); Free Carrier(FCA); Free Alongside Ship (FAS); Free On Board (FOB); Cost and Freight (CFR); Cost, Insurance and Freight (CIF); Carriage Paid To (CPT); Carriage and Insurance Paid to (CIP); Delivered at Place (DAP); Delivered at Place Unloaded (DPU); Delivered Duty Paid (DDP).  See individual listings for basic definitions. | Current Version Incoterms® 2020 has only eleven rules or terms. Incoterms®-International Commercial Terms. They are a Registered Trade Mark of the International Chambers of Commerce (ICC).

INDEMNITY
Letter of indemnity given by the beneficiary of a letter of credit (L/C) to induce the negotiating bank to release payment against the L/C despite the discrepancies in the shipping documents of the beneficiary. Also termed Shippers Indemnity
INELIGIBLE COLLATERAL
Pledged receivables or inventory that does not meet the criteria specified in the loan agreement. Ineligible collateral remains part of the Asset Based Lender’s collateral pool; however, it does not qualify for inclusion in the borrowing base.
INSURANCE COVERAGE
Total amount of insurance carried.
INSURANCE POLICY
Entire written contract of insurance.
INSURANCE PREMIUM
The amount paid to an insurance company for coverage under an insurance policy.
INSURED
The person[s]/company[s] protected under an insurance policy.
INSURER
The party to the insurance contract, which promises to indemnify losses or provide service; the insurance company.
INTERNATIONAL ORGANIZATION FOR STANDARDS (ISO)
ISO (International Organization for Standardization) is the world`s largest developer and publisher of International Standards. ISO is a network of the national standards institutes of 159 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system. See Currency Codes
INTERNATIONAL STANDARD BANKING PRACTICE (ISBP)
ISBP was conceived as an intelligent checklist of procedures for document checkers to follow in examining the documents presented under letters of credit. While not a substitute for the UCP, which remains the guiding text, the ISBP demonstrates how the UCP is to be integrated into day-to-day practice. The ISBP publication can be purchased from the ICC Business Bookstore. Weblink| www.iccbooks.com
INVOICE
A document, which includes, inter alia, an itemized list of goods shipped or servers rendered, with an account of all of costs involved as well as payment and trade terms.
INVOICE DATE
The date the invoice is issued.
IRREVOCABLE LETTER OF CREDIT
A letter of credit which cannot be amended or canceled unless all parties involved in the Letter of Credit agree to the amendment or cancellation prior to any action being taken.
ISO CURRENCY CODE LIST
refer to website www.xe.com/iso4217.php for list of global currencies and the three-character currency codes that are generally used to represent them. Often, but not always, this code is the same as the ISO 4217 standard. (The ISO — or International Organization for Standardization — is a worldwide federation of national standards bodies.) In most cases, the currency code is composed of the country`s two-character Internet country code plus an extra character to denote the currency unit. For example, the code for Canadian Dollars is simply Canada`s two-character Internet code ("CA") plus a one-character currency designator ("D").
ISSUING BANK
The buyer/importer’s bank that establishes a letter of credit.

L

LEGALIZED
Legalization is the process of authenticating or certifying a legal document so a foreign country`s legal system will recognize it as valid and with full legal effect.
LETTER OF CREDIT [L/C]
A legal instrument issued by a bank to a beneficiary [seller/exporter] on behalf of a buyer/importer by which the bank substitutes its own credit for that of the buyer/importer. The seller/exporter receives assurance of payment from the applicant’s bank before proceeding with the shipment. After shipment and upon receipt of proper documentation, outlined in the L/C, the bank will pay the beneficiary. Also known as a documentary letter of credit.
LIBOR
London Interbank Offered Rate.
LOCK BOX
A cash management product offered by financial institutions that accelerates a client’s collection of receivables. The client’s customers are directed to make payments or wire transfers to a specific account at the Lender. Lender’s use lock boxes in asset based financing to control cash receipts.
LOSS
For insurance policies, the portion of an amount in default, the insured percentage of which is subject either to application of a deductible or to indemnification.

M

MT 740
Swift message is sent by the Issuing bank to the Reimbursing bank requesting the reimbursing bank to honour claims for reimbursement of payment(s) or negotiation(s) under a documentary credit.
MT700
Swift message that is sent by the Issuing bank to the Advising bank when issuing a letter of credit.
MULTIMODAL
The concept of international multimodal transport covers the door-to-door movement of goods under the responsibility of a single transport operator (performed with at least two different means of transport).

N

NEGOTIABLE BILL OF LADING
Bill of lading transferred by endorsement.
NEGOTIATION
Under a Letter of Credit, the process whereby a bank gives value for the exporter/supplier’s draft or documents. Negotiation generally includes checking the documents to ensure they meet the terms and conditions of the Letter of Credit; the documents conform to each other and are compatible with the UCP; and each individual document appears to be properly prepared.

O

OCEAN BILL OF LADING
A receipt for the cargo and a contract for transportation between a shipper and the ocean carrier.
OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
is an agency of the United States Department of the Treasury under the auspices of the Under Secretary of the Treasury for Terrorism and Financial Intelligence. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations, and individuals. Website| www.ustreas.gov/ofac
OPEN ACCOUNT
The seller/exporter supplies terms of payment to the buyer and ships the merchandise prior to receiving payment.

P

PARI PASSU
Credit facilities in which two or more lenders are accorded equal treatment under a loan agreement. Most frequently applied to collateral, but may also refer to loan structure, documentation, maturity or any other substantive condition.
PHYTOSANITARY CERTIFICATE
is an official document issued by the plant protection organization of the exporting country, indicating that the plants and plant products covered by the certificate are free of injurious plant diseases and plant pests.
POLITICAL RISK
Risk of default due to cancellation of an import or export license, war, expropriation, confiscation or intervention or transfer risk.
PREMIUM AMOUNT
The cost to purchase insurance.
PREMIUM RATE
Depending on the insurance company the cost per $100 or insured amount.
PRO FORMA INVOICE
An invoice provided by the exporter/supplier to the importer/buyer, which is used as a preliminary invoice together with a quotation.
PROMISSORY NOTE
A negotiable instrument that is evidence of a debt between the borrower and the creditor where the borrower promises to pay a specific amount on specific date[s] at a defined rate of interest.

R

RED CLAUSE LETTER OF CREDIT
A type of Letter of Credit, which provides shipper/exporter with some funds prior to shipment to finance production of the goods.
REVOLVING CREDIT FACILITY
A loan agreement that allows the borrower to frequently draw down and repay advances. The proceeds are usually used to support the working capital needs of the borrower. A borrowing base requirement in the loan agreement commonly mitigates the Lender’s credit risk.
REVOLVING LETTER OF CREDIT
A type of Letter of Credit where the issuing bank to restores the Letter of Credit to the original amount after it has been drawn down.

S

SANCTIONS
For USA see Office of Foreign Assets Control ("OFAC") for Canada see Area Control List
SECURITY AGREEMENT
A document giving a Lender a security interest in assets pledged as collateral. This agreement, signed by the Borrower, describes the collateral and its location in sufficient detail so the Lender can identify it, and assigns to the Lender the right to sell or dispose of the assigned collateral if the Borrower is unable to pay the obligation.
SGS
SGS Group, the world`s largest Control and Inspection Company, represented in more than 130 countries by 210 affiliated companies. SGS North America has offices located throughout the North American continent.
SHIPER’S INDEMNITY
See Indemnity.
SHIPMENT DATE
The date the goods are considered enroute to their destination.
SHIPPER`S EXPORT DECLARATION
A form required by the US Treasury Department and completed by the exporter/shipper showing the value, weight, consignee, destination, etc., of export shipments with declared value greater than $2,500. Now the Automated Export System (AES) is the system used by U.S. exporters to electronically declare their international exports, known as Electronic Export Information (EEI), to the Census Bureau to help compile U.S. export and trade statistics. This information is also shared with the Bureau of Industry and Security, the Directorate of Defense Trade Controls, and other federal agencies involved in monitoring and validating U.S. exports. Formerly, this declaration was only made on paper on the Shipper`s Export Declaration form.
SIGHT DRAFT
A draft that is payable upon presentation to the drawee on sight or on demand. See DRAFT
SIGHT PAYMENT
Under Letter of Credit, payment on receipt of the documents by the issuing bank or the negotiating or confirming bank.
STANDBY LETTER OF CREDIT
A Letter of Credit that can be drawn against only if certain performance does not take place. This type of letter of credit is primarily a payment or performance guarantee. It is used primarily in the United States as U.S. banks are prohibited by law from giving certain guarantees.
SWIFT
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. It supplies secure messaging services and interface software to wholesale financial entities. A MT700 is the SWIFT format for a Documentary Letter of Credit, but it is also possible to issue a Standby Letter of Credit using the same SWIFT message type.

T

TIME DRAFT
A draft [also known as a Usuance draft] which is payable at a fixed or determinable future time. See DRAFT
TRADE CYCLE ANALYSIS
A method of computing whether working capital is sufficient to support the working investment need of a business [See OPERATING CYCLE]
TRADE FINANCE
A bank term for financing export sales which includes, inter alia, Letters of Credit, drafts, forfaiting, factoring, structuring, pre-export, post-export, and receivables.
TRADE NAME
The name under which a firm conducts business.
TRADE TERMS
The terms of a sale, which include price, responsibility for shipping, insurance and customs duties. Also see Incoterms.
TRANSACTION RISK
Transaction risk is the current and prospective risk to earnings or capital arising from fraud, error and the inability to deliver products or services, maintain a competitive position and manage information. Transaction risk is evident in each product and service offered. Transaction risk encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services and the internal control environment.
TRANSFER RISK
Currency measures taken by a foreign government, which make it impossible for the importer/buyer to transfer foreign exchange abroad.
TRANSFERABLE LETTERS OF CREDIT
A Letter of Credit, which enables the beneficiary [exporter/supplier] to transfer wholly or portions of the credit performance to another party.
TRANSSHIPMENT
Transshipment or Transshipment is the shipment of goods or container to an intermediate destination, and then from there to yet another destination.

U

UNIFORM COMMERCIAL CODE [UCC]
A model framework of United States laws that addresses commercial transactions. Each US state may modify or exclude provisions of the model framework when adopting the UCC. While the UCC varies from state to state, the spirit of the state-adopted statutes is basically consistent. The UCC was set forth to stimulate interstate commerce by providing a fair measure of consistency among states’ commercial laws. Article 5 of the UCC covers letters of credit transactions in the U.S.
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (UCP)
A compendium of rules by the International Chamber of Commerce (ICC) that, along with Article 5 of the Uniform Commercial Code, govern documentary credit transactions. ICC’s UCP 600 is the current version which is frequently incorporated by reference into the terms of a Letter of Credit Transaction.
UNIFORM RULES FOR BANK-to-BANK REIMBURSEMENTS (URR)
17 Articles that delineate a number of issues in bank-to-bank reimbursements such as expiry and conditions under which claims can be authenticated. URR725 is the latest version.
UNIFORM RULES FOR COLLECTIONS (URC)
The ICC Uniform Rules for Collections are a practical set of Rules to aid bankers, buyers, and sellers in the collections process. The Rules have been prepared to resolve problems that practitioners have experienced in their everyday operations since 1979. URC 522 underlines the need for the principal and/or the remitting bank to attach a separate document, the collection instruction, to every collection subject to the Rules - makes it very clear that banks will not examine documents, particularly not to look for instructions - addresses problems banks experience in respect of documents against acceptance (D/A) and documents against payment (D/P) - clearly indicates that banks have no obligation to store and insure goods when instructed.
UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL)
was established by the General Assembly in 1966 (Resolution 2205(XXI) of 17 December 1966). In establishing the Commission, the General Assembly recognized that disparities in national laws governing international trade created obstacles to the flow of trade, and it regarded the Commission as the vehicle by which the United Nations could play a more active role in reducing or removing these obstacles.
UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG)
This Convention applies to contracts of sale of goods between parties whose places of business are in different States
USUANCE
It is the time between the drawing of the draft and actual payment of an international obligation. A ‘usuance credit’ is credit available against time drafts.

V

VISAED
An endorsement made by an authorized representative of one country.

Letters of Credit Documentary Credit SeminarSeminar: Letter of Credit

This one-day seminar gives a comprehensive overview of LCs and their application in mitigating payment risk...


 

Country Credit RatingCountry Ratings 

Credit Ratings form major credit agencies on different counties of the world to help you assess international risk...


 

Glossary of Trade TermsGlossary of Trade Terms

This glossary is a basic guide to terms used in international trade transactions and letters of credit...


 

DMC Firewall is a Joomla Security extension!
This website uses cookies to ensure you get the best experience on our website.