Glossary of termsA | B | C | D | E | F | G | I | L | M | N | O | P | Q | R | S | T | U | W
-- A --
The act of giving a written undertaking on the face of a usance bill of exchange to 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) - see “Collections – Introduction”.
A documentary credit which requires the beneficiary to draw a usance bill for subsequent acceptance by the issuing bank or the advising bank or any other bank as the credit stipulates - see “Documentary Credits”.
In the context of fraud, a bill drawn without a genuine underlying commercial transaction.
Another name for the applicant/opener of a documentary credit i.e. the importer = the person for whose account the transaction is made.
Advice of Fate
Conveying the terms and conditions of a DC to the beneficiary. The advising bank is the issuing bank's agent and is usually located in the beneficiary's country. (see"Export - DC Advising") The advising bank also takes reasonable care to verify the authenticity of the credit. (ICC UCC 500 Art 7).
Any changes/amendments to the term of a DC must be initiated by the applicant and issued and advised to the beneficiary. If the credit is irrevocable the beneficiary has the right to refuse an amendment. (see"Amendments to DCs")
Any party, usually the importer, who applies for a documentary credit.
A bank's guarantee of payment of a B/E or promissory note by using the endorsement phrase"good per aval" on the note. Alternatively, the bank may issue a separate guarantee.
-- B --
A credit issued on the security of an existing credit ("the master credit"). Payment of this credit will be contingent upon documents presented for the"master" credit. Each side of a B/B transaction covers the shipment of the same goods.
Bill for Collection (BC)
Bill of Exchange (B/E)
B/E is synonymous with"draft". An unconditional order in writing, addressed by one person to another, signed by the person giving the order. The addressee is required to pay a certain sum of money to the order of a specified person or to bearer either on demand or at a fixed or determinable future time.
Bill of Lading (B/L)
Bill Receivable (BR)
When a bill of lading is signed by the shipper and made out"to order" or"shipper's order" it is said to be blank endorsed. The bill of lading then becomes a bearer instrument. Any holder of a blank endorsed bill of lading can take delivery of goods from the shipping company.
-- C --
Case of Need
Clean Bill Purchased
Clean Bill Receivable (CBR)
Clean Import Loan (CIL)
A liability that arises only under specified conditions, e.g. when a bank opens a DC it is liable to make payment only when the DC terms are fully met.
-- D --
Deferred Payment Credit (DPC)
Documentary Credit (DC)
A conditional undertaking by a bank to make payment, often abbreviated to “credit”. More precisely, it is a written undertaking by a bank (issuing bank) given to the seller (beneficiary) at the request of the buyer (applicant) to pay a sum of money against presentation of documents complying with the terms of the credit within a set time limit.
Documents Against Acceptance (D/A)
Documents Against Payment (D/P)
Documents of Title
Bill of exchange issued by an exporter and submitted to his bank for collection, or under a DC. Shipping documents are usually attached to the draft/bill of exchange. (This is not to be confused with a"bankers' draft", which is sometimes used as a vehicle for reimbursement.)
The drawee (usually the bank) pays the payee (usually the importer) on behalf of the drawer (usually the exporter) according to the terms of the draft that the bank has issued for the drawer. The drawer then presents payment to the drawee according to the terms of the collection order contained in the draft. (Example: In a typical checking transaction, the bank is the drawee of the check, the person writing the check is the drawer and the person to whom the check is written is the payee.)
Maturity date for payment
-- E --
Financing for exporters. (see"Financing Export Collections")
-- F --
Foreign Bill Purchased (FBP)
Forward Exchange Contract
Contract between the bank and its customer to buy/sell a fixed amount of foreign currency at a future date at a specified rate. A customer could enter into a forward exchange contract for a DC payment or to sell the proceeds received from an export negotiation.
Goods OR the cost of transporting goods.
-- G --
A shipping industry term for a loss incurred by a sacrifice that has been made voluntarily or by 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 borne proportionately by ship and cargo owners according to their respective interests in the voyage.
The weight of the merchandise in its shipping form, i.e. including all its packaging.
-- I --
Also known as a Letter of Guarantee (L/G). In a DC transaction, the credit applicant assumes liabiility for repayment of the credit to the negotiating bank if the latter cannot obtain reimbursement from the issuing bank. The applicant has"indemnified" the negotiating bank from any liability.
This refers to the propensity of a commodity to self-destruction which gives rise to a high insurance risk. Therefore, coverage is given only after payment of an additional premium (examples of this propensity are fruit which can rot and coal-dust which can ignite spontaneously).
International Chamber of Commerce (ICC)
The issuing bank and the confirming bank (if any) undertake to honor a specified credit provided the terms of the credit are observed. The irrevocable credit may be communicated to the beneficiary by the advising bank and cannot be amended or canceled unless the issuing bank, the confirming bank and the beneficiary agree.
The bank that opens a documentary credit at the request of its customer, the applicant.
-- L --
Letter of Credit (L/C)
Letter of Hypothecation
Loan Against Imports (LAI)
Loans granted to Imports customers for payment of bills, usually bills under our DCs.
-- M --
Payment due date of a usance bill or promissory note.
-- N --
Usually used with respect to bills of lading. A negotiable B/L is a valid document of title, while a non-negotiable B/L is not. The beneficiary of a DC (the exporter) may send the importer a non-negotiable B/L for information.
a) The process of arriving at payment terms for draft credits that have been agreed to by the issuing bank. The credit may be confirmed, i.e. without recourse to the beneficiary or unconfirmed, i.e. with recourse to the beneficiary.
b) Purchase of an outward collection, thereby providing finance for the exporter.
The first stage in protest of a dishonored bill: if instructed to protest for non-payment/non- acceptance, the collecting bank must send the bill to a notary public who will re-present it to the drawee on the same day it was refused, or the next business day. If the drawee still refuses the bill the notary public “notes” on the bill: the amount of his charges, the date and his initials. The reason for refusal is shown on a note attached to the bill. The bill is then protested - see “Protest”.
-- O --
When"To Order" is shown on Bills of Lading the shipper must endorse it"in blank", i.e. no named consignee. This turns the Bill of Lading into a bearer document and it becomes transferable by delivery.
Bill received for collection by the (OBC) Remitting Bank, handled by the Exports Department.
-- P --
Perils of the Seas
These are accidents or casualties of the sea. Ordinary actions of the winds and waves are not included. The term is invoked only when heavy or tempestuous weather on a voyage is of sufficient violence to constitute a"peril of the sea".
Power of Attorney
Authority given to one party to act for another. A P/A is completed by back-to-back DC applicants to give the Bank authority to substitute invoices and to draw and issue drafts under the master DC if the customer fails to do so - see “Special DCs”.
The initiator of a given transaction whose instructions are followed at all stages. In collection transactions the principal is generally the exporter. In other cases the principal may be the customer who opens a DC.
The formal re-presentation of a dishonored bill of exchange. The bill is presented by a notary public to the drawee; if refused again, it is"noted" (see"noting"). The notary public (representing the Bank) then issues a formal protest, an official certificate that the bill has been refused. The drawer can use this certificate to sue the drawee in court. Whether or not the drawer sues the drawee, the Bank retains recourse against the drawer & the drawee/endorser.
-- R --
The right to claim a refund from another party who has handled a bill at an earlier stage. Ultimate recourse is to the exporter as drawer of the bill. The bank's right of recourse is covered in the TFGA signed by all import/export customers.
Red Clause Credit
A credit that is automatically reinstated each time a draw takes place or upon receipt of authorization from the DC-issuing bank. The credit carries limits on duration and on the borrowing amount (cumulative or non-cumulative) involved for each draw. (see"Special DCs")
-- S --
Shipping Guarantee (SG)
Shipping guarantees enable customers to obtain goods before the arrival of the documents of title. The guarantees are issued to shipping companies who thereby agree to forward the bills of lading to the bank. If the customer does not hold a trust receipt, the Bank takes 100% cash margin against the value of the goods.
Provides details of the creditworthiness and business background of traders and manufacturers. Status reports are produced by a bank's trade and credit information (TCI) department or by a credit information bureau.
Prior to negotiation of the master credits in back-to-back and transferable credit operations, the prime beneficiary may substitute documents such as invoices and drafts.
-- T --
A D/P transaction in which are bills purchased by the bank but it does not control the goods. Because of this the bill is accounted for as a D/A with 100% cash risk.
When the buyer is the consignee for an airway bill, the bill of lading is sent directly to the buyer. When the buyer is the consignee for a parcel post receipt, the forwarder's cargo receipt is presented in place of the bill of lading.
Trade and Credit Information (TCI)
Trade Financing General Agreement (TFGA)
Trust Receipt (T/R)
A T/R is issued for a TFGA transaction and is based upon the terms of the TFGA. It describes the following terms of agreement between the bank and the importer:
- The importer acknowledges the bank's vested interest in the goods.
- The importer may have physical possession of the goods as trustee.
- The importer is permitted to sell the goods and account to the bank for the sale proceeds.
- The importer must insure the goods during the transaction process, noting the bank's vested interest within the insurance agreement.
Debts arising out of sale proceeds cannot be factored or sold by the importer without the specific approval of the bank.
-- U --
Uniform Customs and Practice for DCs
Uniform Rules for Collections
A bill of exchange which allows the drawee to have a"usance" (period of credit or term). The usance can begin from the date of the bill of lading or from"sight by the drawee" (the date of acceptance by the drawee) and is stated in days or months. This is an essential feature of acceptance credits and D/A collections.
-- W --
A drawer can waive the right to collect BC and/or interest charges under circumstances as set forth in ICC 522, Uniform Rules for Collections.