Abusive Draw - Drawing on a standby letter of credit when no violation of the
underlying contract has occurred.
Acceptance - Acceptance constitutes an unconditional obligation on the part of
the accepting party to pay the draft at maturity. A draft accepted by a bank is
called a "banker’s acceptance" whereas one accepted by a company is called a
Account Party - Party for whom a letter of credit is opened. "Account party" and
"applicant" are the same, but sometimes one party will agree with the issuing bank
to make all payments under a letter of credit showing the name of another party
(as in the case of affiliated companies). Banks may refer to one of these parties as
the applicant and the other as the account party.
Advance Payment - Payment made by the buyer to the seller prior to shipment.
It is customary to only pay an agreed percentage of the value of the goods with
the remainder paid after shipment.
Advance Payment Bond - Bond, guarantee, or standby letter of credit given by a
seller receiving an advance payment (or contract) to the buyer to assure that the
funds will be returned if goods are never shipped or the services are not
Advising Bank - Bank that receives a letter of credit from the issuing bank for
authentication and delivery to the beneficiary. The advising bank is usually a
correspondent of the issuing bank located in the same country as the beneficiary.
Airway Bill - Document signed by an airline to show receipt of goods for air
transportation from and to the airports indicated.
Ancillary Guarantee - Type of guarantee where the guarantor joins with one of
the parties to the contract and agrees to fulfill that party’s obligations if necessary,
effectively co-signing the contract. (Sometimes referred to as a "Bank Guarantee"
in foreign countries.) As opposed to an independent or demand guarantee, under
an ancillary guarantee the guarantor also acquires rights under the contract and
may resort to terms in the contract to dispute claims against the guarantee. Also
called a "contract guarantee." It should be noted that banks in the USA are
generally prohibited by law from issuing ancillary guarantees, banks in other
countries are not. US banks instead issue demand guarantees or standby letters of
Applicant - Party requesting that a letter of credit be opened.
Approval, Documents Sent on - Treatment of letter of credit documents
wherein the negotiating bank does not certify that the documents meet the
requirements of the L/C, but rather forwards the documents to the issuing bank
with a request that it examine the documents, obtain waiver of any discrepancies,
and pay, or, in the case of time drafts, accept the drafts, if drawn on them, or
authorize acceptance by the paying/drawee bank.
Assignment of Proceeds - Legal mechanism by which the beneficiary of a letter
of credit may pledge the proceeds of future drawings to a third party. Assigning
proceeds involves giving the letter of credit to a bank, which will hold the L/C
until drawn upon, along with irrevocable instructions to the bank to disburse
proceeds, when generated, in a specified way, (such as, "pay 50% of each
drawing to Acme Corporation.") The bank will acknowledge the assignment to the
assignee but has no obligation actually to pay any funds to the assignee unless the
L/C is drawn upon by the beneficiary and payment is received from the issuing or
confirming bank. An assignment of proceeds is not an assignment or transfer of
the letter of credit and the assignee acquires no rights to perform under the L/C in
order to generate funds.
Authority to pay - See "cable for authority to pay."
Aval - Guarantee added by a bank to an accepted time draft by endorsing the
front of the draft "per aval." The avalizing bank becomes obligated to pay the draft
at maturity if the drawee/acceptor fails to do so.
Avalized Draft - Trade acceptance to which an aval has been added.
B/A - Abbreviation for "banker’s acceptance."
B/L - Abbreviation for "bill of lading."
Banker’s acceptance - Time draft that has been drawn on and accepted by a
bank. In a large and active market, investors buy and sell bankers’ acceptances at
rates similar to, and often below, LIBOR. Rates are low due to the low risk of
default on the part of a bank and the fact that there is generally an underlying
trade transaction, the proceeds of which are pledged to cover the acceptance
when it matures.
Beneficiary - Party in whose favor a letter of credit is issued, who is entitled to
present documents required by the L/C and receive payment.
Bid Bond - Bond, guarantee, or standby letter of credit that accompanies a bid,
issued for an amount that will be forfeited if the bidder wins the bid but then
Bill of Exchange - A draft.
Bill of Lading - Document signed by a transportation company (carrier) to show
receipt of goods for transportation from and to the points indicated. Although US
law recognizes such a thing as a non-negotiable bill of lading, international law
distinguishes bills of lading from waybills in that a bill of lading is a title document
issued to order of a "consignee," who can then transfer title (legal ownership of
the goods) by endorsement and delivery ("negotiation") of the bill of lading.
Someone must present the bill of lading at the point of delivery in order to claim
the goods. A waybill is not negotiable in this way and the transportation company
will simply deliver the goods to the consignee. A transport document issued
"consigned to order of..." is a negotiable bill of lading; one issued simply
"consigned to..." is a nonnegotiable waybill. See also "multimodal bill of lading,"
"ocean bill of lading," "port-to-port bill of lading."
Bond - See specific types: "advance payment bond," "bid bond," "performance
C&F - Abbreviation for "cost and freight (...named port of destination)." Also
CAD - Abbreviation for "cash against documents."
CFR - Abbreviation for "cost and freight (Named port of destination)." Also C&F.
CIF - Abbreviation for "cost, insurance, and freight (Named port of destination)."
CIP - Abbreviation for "carriage and insurance paid to (Named place of
CPT - Abbreviation for "carriage paid to (Named place of destination)."
Cable for Authority to Pay - Request for permission to pay a letter of credit
drawing despite discrepancies, sent electronically by the negotiating bank to the
Carriage and Insurance Paid to (Named place of destination) - Shipping term
included in a contract of sale (abbreviated as CIP) meaning that the seller agrees
to arrange and pay for transportation and cargo insurance over the goods to the
named destination, such costs being included in the price of the goods.
Nonetheless, all 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 to the
carrier, is transferred from the seller to the buyer when the goods have been
delivered into the custody of the carrier.
Carriage Paid to (Named place of destination) - Shipping term included in a
contract of sale (abbreviated as CPT) meaning that the seller agrees to arrange
and pay for transportation of the goods to the named destination, such costs being
included in the price of the goods. Nonetheless, all 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 to the carrier, is transferred from the seller to the
buyer when the goods have been delivered into the custody of the carrier, at
which point the buyer must arrange for cargo insurance if so desired.
Carrier - Any person who, in a contract of transportation, undertakes to
perform, or to procure at his own responsibility the performance of,
transportation by rail, road, sea, air, inland waterway or by a combination of such
modes. See "multimodal bill of lading" for further discussion.
Case-of-Need - An agent of the exporter located in the country of the importer
who is to be notified by the presenting bank under a draft collection of any
difficulties in collecting payment. The case-of-need may be given the power to
change the collection instructions or even the draft amount, or may just be
expected to make arrangements to store the goods and locate an alternate buyer.
Whatever authority the case-of-need has should be specified in the collection
Cash Against Documents - Term (abbreviated as CAD) for documentary
collection instructions requesting the presenting bank to deliver documents only
upon receipt of payment from the drawee/importer. (The same as, "documents
Certificate of Origin - Document that is required in certain countries. It is a
signed statement as to the origin of the export item. Certificates of origin are
usually signed through an official organization, such as a local chamber of
commerce, or can simply be a statement signed by the manufacturer or exporter
as to the source of the goods.
Clean Bill of Lading - Bill of lading that bears no clause or notation which
expressly declares a defective condition of the goods and/or the packaging.
Clean Draft - Draft which is not accompanied by documents.
Clean letter of credit - Letter of credit that calls for presentation of nothing
more than a draft to trigger payment. This term is sometimes used incorrectly to
mean "standby letter of credit with all documents presented correctly".
Collecting Bank - Any bank other than the remitting bank involved in the
collection of a draft and/or documents.
Combined transport - See "multimodal bill of lading."
Commercial Invoice - A bill for the goods from the seller to the buyer. These
invoices may be used by governments to determine the true value of goods when
assessing customs duties.
Commercial Letter of Credit - Letter of credit intended to act as the vehicle of
payment for goods sold by one party to another.
Commercial Risk - Risk that the buyer of goods cannot or will not pay the seller
when payment is due.
Confirmed Letter of Credit - Letter of credit to which the advising bank has
added its own, independent undertaking to honor presentation of the required
documents, i.e., pay the beneficiary at sight or at maturity, as specified by the
L/C. See also "silent confirmation."
Confirming Bank - Bank that has added its confirmation to a letter of credit.
This term is also sometimes used loosely to refer to a bank that has issued a
commitment to purchase letter of credit documents without recourse, a practice
called "silent confirmation."
Consignee - Party into whose possession goods are to be delivered.
Consignment - Term of sale wherein a seller delivers goods to the buyer but
retains legal ownership of the goods until they are re-sold by the buyer. The buyer
is responsible for remitting payment to the seller at time of re-sale.
Consular Invoice - A document that is required in some countries. It describes
the shipment of goods and shows information such as the buyer and seller, and
value of the shipment. Certified by the consular official of the foreign country
stationed in the USA, it is used by the country's customs officials to verify the
value, quantity, and nature of the shipment.
Contract Guarantee - See "ancillary guarantee."
Contract Risk - Risk that the buyer of goods will renege on the contract (as
opposed to simply being unable to pay).
Cost and Freight (Named port of destination) - Shipping term included in a
contract of sale (abbreviated as CFR or C&F) meaning that the seller agrees to
take full responsibility for delivering the goods to the port of loading, clear the
goods for export, and arrange and pay for transportation of the goods to the
named port of discharge, such costs being included in the price of the goods.
Nonetheless, all 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 at the port of loading. It is up to the buyer to arrange marine
insurance for the ocean voyage and transportation from the port of discharge.
Cost, Insurance and Freight (Named port of destination) - Shipping term
included in a contract of sale (abbreviated as CIF) meaning that the seller agrees
to take full responsibility for delivering the goods to the port of loading, clear the
goods for export, and arrange and pay for transportation and marine insurance
over the goods to the named port of discharge, such costs being included in the
price of the goods. Nonetheless, all risk of loss 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 at the port of loading. It is up to the buyer to arrange
transportation from the port of discharge.
Country Risk - Risk incurred by a seller of goods that a buyer in a different
country will not be able to pay for the goods due to political or economic
conditions in his country. The two components of country risk are "political risk"
and "transfer risk."
Credit Insurance - Insurance against losses due to inability or failure of
customers to pay. There is usually a high deductible amount involved before the
insurance will pay.
Credit Risk - Risk incurred by a seller of goods that the buyer cannot or will not
pay for them. See also "commercial risk," "contract risk," "financing risk,"
"political risk," "transfer risk."
Cumulative Revolving Letter of Credit - Revolving letter of credit that permits
the seller to carry over any amounts not drawn into successive periods.
D/A - Abbreviation for "documents against acceptance."
D/P - Abbreviation for "documents against payment."
Days of Grace -The number of days the acceptor of a draft may go past due
before being judged in default and triggering any guarantor to pay on the acceptor’
s behalf. When an avalized draft is sold to a forfaiter, the forfaiter will impute the
days of grace into the financing period.
Deferred Payment - Payment a set time after shipment or presentation of
shipping documents, as opposed to immediately or "at sight." A distinction is
drawn between a letter of credit that is available for deferred payment and one
that is available for acceptance of time drafts in that no drafts are involved under a
deferred payment L/C. Without accepted drafts, the beneficiary’s ability to sell, or
"discount," his right to payment to another lender or investor is restricted.
Deferred Reimbursement - Arrangement under a letter of credit where the
issuing bank agrees up front with its customer, the applicant, to pay the
beneficiary upon presentation of the documents required in the L/C but to defer
charging the applicant until a later date, thereby financing the purchase of goods
under the L/C, usually for the expected amount of time the applicant needs in
order to re-sell the goods.
Demand Guarantee - Type of guarantee that is payable immediately upon
presentation of documents specified, without regard to the validity of the
documents or compliance with the underlying contract, as opposed to an
"ancillary guarantee." Also called an "independent guarantee." Although there are
separate rules of practice for demand guarantees and letters of credit, they are
both considered letters of credit under US law.
Destination Control Statement - This item appears on the commercial invoice,
and ocean or air waybill of lading to notify the carrier and all parties that the item
can be exported only to certain destinations.
Direct Collection - Service for handling export draft collections in which the
exporter’s bank provides the forms that bear the bank’s own letterhead for
mailing documents to the buyer’s bank for collection. To the buyer’s bank, it will
appear that the documents were sent from the exporter’s bank, but time and
expense can be saved by bypassing unnecessary processing at the exporter’s
Discrepancies - Term used to describe deviations between documents presented
and requirements set in the letter of credit or inconsistencies among the
Dishonor - Failure or refusal by the drawee/payer to accept a draft presented for
acceptance or to pay a draft presented for payment.
Documentary Credit - Synonymous with "letter of credit."
Documentary Draft Collection - Process for collecting payment in a sale of
goods wherein a legal demand for payment from the buyer is made by a bank
acting as collecting agent for the seller. Demand is made by presenting a draft.
The collecting bank is also entrusted with documents to deliver in accordance
with accompanying instructions, usually once the draft is either paid or accepted.
These documents are generally needed by the buyer to show title to the goods
before they will be released by a freight forwarder and customs.
Documentary Letter of Credit - Another way to refer to commercial letters of
Documents Against Acceptance - Term for documentary draft collection
instructions requesting the presenting bank to deliver documents only upon
acceptance of the draft by the drawee/importer. See also "acceptance."
Documents Against Payment - Term for documentary collection instructions requesting the presenting bank to
deliver documents only upon receipt of payment from the drawee/importer.
Synonymous with "cash against documents."
Draft - Written demand for payment of a specified amount addressed to a named
party, called the "drawee," and signed by the "drawer." A draft may demand
payment immediately upon presentation ("at sight") or on a specified maturity date
and must also specify a party to be paid (the "payee"). Most drafts are
"negotiable," meaning the payee’s right to payment can be transferred by the
payee to another party by endorsement and delivery of the draft.
Draft Collection - Process for collecting payment in a sale of goods wherein a
legal demand for payment from the buyer is made by a bank acting as collecting
agent for the seller. Demand is made by presenting a draft. See also "draft" and
"documentary draft collection."
Drawee - Party to whom a draft is addressed and from whom payment is
demanded, or, in a documentary collection with no draft, party from whom
payment is requested in exchange for delivery of documents.
EMC - Abbreviation for "export management consultant."
ETC - Abbreviation for "export trading company."
EXW - Abbreviation for "ex works (Named place)."
Evergreen Letter of Credit - 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
Ex Factory - Synonymous with "ex works."
Ex Works (Named place) - Shipping term included in a contract of sale (abbreviated as EXW) meaning 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 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.
Expiry Date - Last date on which documents may be presented or corrected in
order to comply with a letter of credit. Presentation must be made to the bank
indicated in the L/C.
Export Letter of Credit - Term used by an exporter to describe a commercial
letter of credit in his favor or by a bank to describe a letter of credit issued by a
bank other than itself. The same L/C will be called an "import letter of credit" by
the importer/butyer and the issuing bank.
FCA - Abbreviation for "free carrier (Named place)."
FCR - Abbreviation for "forwarder’s cargo receipt."
FOB - Abbreviation for "free on board (Named port of shipment)."
Factoring - Service of assuming the credit risk of another party’s sales, generally
including collecting payment when due. Factors often provide or arrange limited-
recourse financing against the accounts receivable they are guaranteeing, referred
to as "purchasing receivables."
Fed Funds Rate - Interest rate at which banks in the United States lend each
other dollars for next-day repayment ("overnight loans").
Financing Risk - Term used to describe the increasing uncertainty that the buyer
of goods will have the capacity to pay when payment is due the longer the time
period he is given to make payment.
Forfait - Purchase of negotiable instruments, most often avalized drafts, without
recourse. The forfaiter assumes the credit risk of being able to collect payment
Forwarder’s Cargo Receipt - Document issued by a freight forwarder or freight
consolidator indicating goods have been received from the seller and are being
held on behalf of the buyer. Goods are generally received in the seller’s country
and the forwarder/consolidator will arrange shipment to the buyer according to
the buyer’s instructions.
Free Carrier (Named place) - Shipping term included in a contract of sale
(abbreviated as FCA) meaning that the seller fulfills his obligation to deliver when
he has handed over the goods, cleared for export, into the charge of the carrier,
freight consolidator, or freight forwarder named by the buyer at the named place
Free on Board (Named port of shipment) - Shipping term included in a
contract of sale (abbreviated as FOB) meaning that the seller fulfills his obligation
to deliver when the goods have passed over the ship’s rail at the named port of
shipment, all costs of inland transportation and loading being included in the price
of the goods. The buyer has to bear all costs and risks of loss of or damage to the
goods from that point.
Freely Negotiable Letter of Credit - Letter of credit that indicates it is "available
with any bank by negotiation." By including this wording, the issuing bank
authorizes the beneficiary to present documents to the bank of his choice for
examination and collection of payment.
Freight Forwarder - Company that, as an agent for the shipper, arranges
transportation for goods. Many freight forwarders offer additional services such
as preparing export documentation, arranging for goods to be packed into
shipping containers, arranging for goods to clear customs, etc.
Full Set - All signed originals of a document. For example, bills of lading are
often issued in three originals, all having the same validity for claiming goods at
the place of delivery.
Grace Period - See "days of grace."
Import Letter of Credit - Term used by an importer to describe a commercial
letter of credit he has asked a bank to issue or by a bank to describe a letter of
credit it has issued. The same L/C will be called an "export letter of credit" by the
Independent Guarantee - See "demand guarantee."
Inspection Certificate - A document that is required by some purchasers and
countries in order to attest to the specifications of the goods shipped. This is
usually performed by an independent third party that will inspect the goods for
Installment Letter of Credit - Letter of credit calling for multiple shipments
within specified date ranges.
Insurance - see "credit insurance" and "marine cargo insurance."
Irrevocable Letter of Credit - Letter of credit that cannot be amended or
canceled without agreement of both the beneficiary and the issuing bank. Any
letter of credit subject to the UCP500 or to US law is irrevocable unless it
Issuing Bank - Bank that has issued a letter of credit. The issuing bank is
obligated to pay if documents are presented that comply with the L/C
Letter of Credit - A letter on the part of a bank and at the request of one of the
bank’s customers, to pay a named beneficiary a specified amount of money (or to
deliver an item of value) if the beneficiary presents documents in accordance with
the terms and conditions specified in the letter of credit.
Letter of Guarantee - Undertaking, usually on the part of a bank, either to fulfill
the obligations of another party (see "ancillary guarantee") or to pay a specified
amount of money upon presentation of specified documents stating that the party
being guaranteed has defaulted on certain obligations (see "demand guarantee").
One must be careful to discern which type of guarantee one is dealing with as
they both require presentation of documents but work very differently thereafter.
US law forbids banks from making guarantees, so they use letters of credit to
accomplish the same goal.
LIBOR - Acronym for the London Interbank Offered Rate. The interest rate at
which banks in London place Eurocurrency/Eurodollar deposits with each other
for specified, fixed periods of time, most commonly six months.
Marine Cargo Insurance - Insurance covering loss of or damage to goods in the
course of international transportation. The term is used for both air and land
transportation as well as ocean transportation.
Marine Bill of Lading - Synonymous with "ocean bill of lading."
Multimodal Bill of Lading - Bill of lading covering shipment of goods by more
than one means of transportation but including an ocean leg. The two major
forms of multimodal bill of lading are the combined transport bill of lading and the
through bill of lading. In a "combined transport bill of lading", the carrier signing
the bill of lading (the "contractual carrier") frequently subcontracts the various
legs to other carriers (the "actual carriers"), but still takes responsibility for
delivery of the goods to the "place of delivery" and for any damage that might
occur during carriage. In a "through bill of lading", the carrier takes responsibility
for the goods only up to a specified point (still called the "place of delivery") and
then passes responsibility to a second carrier for "on-carriage" to the "final
Multimodal Transport - Shipment of goods by more than one means of
transportation but including an ocean leg (see "multimodal bill of lading").
Negotiable - Quality belonging to a document that enables it to transfer the
ownership of money, goods, or other items of value specified in the document by
endorsement and/or delivery of the document. Checks, drafts, promissory notes,
bonds, stock certificates, bills of lading, and warehouse receipts are examples of
documents often issued in negotiable form.
Negotiate - To "buy" documents representing ownership of money, goods, or
other items of value. The seller is also said to "negotiate to" the buyer. Unless
otherwise agreed between the buyer and seller (such as, by negotiating "without
recourse"), the seller continues to be fully responsible for the enforceability of the
documents. For example, a bank that negotiates documents under a letter of credit
advances funds to the presenter before submitting the documents to the issuing
bank for payment.
Negotiating Bank - Bank to which letter of credit documents are presented by
the beneficiary for collection of payment. The name derives from the fact that the
negotiating bank is normally authorized by the issuing bank to negotiate
documents (see "negotiate"), but it may or may not choose actually to do so.
Furthermore, realizing that this bank may be authorized to pay or accept drafts,
rather than negotiate them, UCP500 now uses the term "nominated bank" rather
than "negotiating bank." Unless otherwise instructed, negotiating banks in North
America generally examine the documents for discrepancies before forwarding
them to the issuing bank, but this is properly viewed as a service separate from
negotiating and is not necessary when negotiating with recourse.
Non-Cumulative Revolving Letter of Credit - Revolving letter of credit that
does not permit the seller to carry over any amounts not drawn upon in previous
Notify Party - Party to be notified by the carrier of arrival of the goods at their
destination. Normally the notify party is the importer and/or the importer’s agent
for clearing goods through customs.
Ocean Bill of Lading - Bill of lading including shipment on an ocean vessel, also
called a "marine bill of lading".
Performance Bond - Bond issued at the request of one party to a contract in
favor of the other party to the contract to protect the other party against loss in
the event of default on the contract by the requesting party. The bonding agent
may undertake to fulfill the contract or may simply undertake to pay a specific
amount in monetary damages. A standby letter of credit or demand guarantee is
often used as a performance bond with the latter characteristics.
Political Risk - Risk in a sale of goods that the government in the buyer’s
country may take some action that prevents the buyer from paying. This covers
possibilities such as foreign exchange controls and nonpayment due to war or
Port-to-Port Bill of Lading - Bill of lading covering shipment by ocean only. The
shipper/seller is responsible for transporting the goods to the port of loading and
the buyer is responsible for picking the goods up at the port of discharge.
Multimodal, rather than port-to-port, bills of lading should generally be used for
containerized shipments and other shipments where the place of receipt and/or the
place of delivery is inland.
Pre-Export Financing - Specific form of working capital lending in which the
borrower is given funds needed to obtain or manufacture goods that have been
ordered by a buyer in another country. As such financing is normally earmarked
to individual sales, documentation of each sale must be provided to the lender,
often in the form of a letter of credit with proceeds assigned to the lender.
Presenting Bank - In a draft collection transaction, the bank that contacts the
drawee/buyer of goods, for acceptance and/or payment.
Principal - Party entrusting a draft and/or documents to a bank for collection of
payment; usually the seller of goods.
Progress Payment - One in a series of payments made at stages in the
performance of a contract. Examples would be payments made during the
various stages of construction.
Protest - In a draft collection transaction, the formal legal process of registering
that payment or acceptance of the draft has been demanded but the drawee has
refused to pay or accept the draft.
Reimbursing Bank - In a letter of credit transaction, the bank with which the
issuing bank maintains an account and which is authorized by the issuing bank to
charge that account to pay claims received from the negotiating bank for
documents that have been presented.
Remitting Bank - In a draft collection transaction, the first bank in the chain of
collection; the principal’s or seller’s bank.
Retention of Title - Legal arrangement under which a seller of goods delivers
these goods "on consignment" into someone’s custody but ownership remains
with the seller until he is paid. Retention of title allows the seller to repossess the
goods whenever desired and to establish a claim against the custodian if the goods
are sold or used without being paid for.
Revocable Letter of Credit - Letter of credit that can be amended or canceled at
any time without notice to or consent of the beneficiary. A letter of credit that is
subject to the UCP500 or to US law is revocable only if it clearly states this on the
Revolving Letter of Credit - Letter of credit that reverts to its original amount at
specified intervals, thereby preventing drawing too much in any one period. See
also "cumulative revolving letter of credit" and "non-cumulative revolving letter of
Shipper's Export Declaration - The SED is used to control exports and act as a
source document for official US export statistics. SEDs must be prepared for
shipments through the U.S. Postal Service when the shipment is valued over
$500. SEDs are required for shipments not using other carriers, when the value
of the commodities, classified under any single Schedule B number, is over
$2,500. SEDs must be prepared, regardless of value, for all shipments requiring
an export license or destined for countries restricted by the Export Administration
Regulations. SEDs are prepared by the exporter or the exporter's agent and
delivered to the exporting carrier (the post office, airline, or maritime company ).
The exporting carrier will present the required number of SED copies to the US
Customs Service at the port of export.
Shipper’s Indemnity - Indemnity given by the beneficiary of a letter of credit to
the negotiating bank to induce payment despite any discrepancies that may exist in
Shipping Terms - That part of a contract between a buyer and seller that
specifies who is responsible for each aspect of shipping the good; this may
include responsibility for packing, arranging and paying for transportation and
insurance, clearing customs, and so forth.
Sight - Time of presentation, as in a draft payable "at sight" or "90 days after
Sight Draft - Draft that demands payment "at sight," or immediately, as opposed
to a time draft, which may be payable "90 days after sight" or "30 days after bill
of lading date."
Silent Confirmation - Term used for a bank’s commitment to negotiate
documents under a letter of credit without recourse at a future date. A silent
confirmation is not a confirmation in the true sense, and will not use the word
"confirm," but is rather an equivalent form of protection for the beneficiary. The
bank will require that the letter of credit be negotiable or payable by itself in order
to be able to establish holder-in-due-course rights equivalent to those of a
Standby Letter of Credit - As opposed to a commercial letter of credit, a letter
of credit that does not cover the direct purchase of merchandise, so called
because it is often intended to be drawn on only when the applicant for whom it is
issued fails to perform an obligation. There is, nonetheless, a type of standby
letter of credit that is intended to be drawn on, referred to as a "direct pay letter of
credit." Standby letters of credit are based on the understanding that payment is
made against presentation of documents - usually a statement from the seller
indicating that the buyer has not paid for merchandise/invoices on the due date.
Supplier Financing - Arrangement where the seller/supplier of goods allows the
buyer an extended period of time after shipment to pay for the goods. Basically,
open credit terms.
SWIFT - Society for Worldwide Interbank Financial Telecommunication
Tenor - Time at which a draft indicates it is payable, such as, "at sight," "60 days
after the bill of lading date," or "on January 31, 2007."
Time Draft - Draft that demands payment at a specified future date rather than
immediately upon presentation.
Trade Terms - Same as "shipping terms."
Transferable Letter of Credit - Type of letter of credit that names a middleman
as beneficiary and allows him to give another party, the actual supplier, certain
rights to present documents and receive payment under the letter of credit.
Transfer must be effected by a bank authorized to do so by the issuing bank and
involves notifying the transferee (called the "second beneficiary") of what
documents he must present. The documents must be the same as those required
in the letter of credit itself but the price of the goods may be reduced and the
middleman’s name may be required to be listed in the transferee’s invoices as the
buyer, thereby allowing the middleman to substitute invoices at a higher price and
receive the difference without disclosing the name of the actual end-buyer. The
transferring bank is not obligated to pay documents presented under the transfer
- such obligation remains with the issuing bank.
UCC - Abbreviation for "Uniform Commercial Code."
UCP - Abbreviation for "Uniform Customs and Practice for Documentary
Credits." The 1993 revision is referred to as "UCP500" as it is publication number
500 of the International Chamber of Commerce.
Unconfirmed Letter of Credit - Letter of credit that has not been confirmed
(see "confirmed letter of credit").
Uniform Commercial Code - United States statute covering the rights and
obligations of the various parties involved in the purchase and sale of goods. The
UCC includes coverage of drafts and other negotiable instruments, documents of
title, transfers of funds between banks, and security interests in assets as well as
draft collections (in Article 4) and letters of credit (in Article 5).
Uniform Customs and Practice for Documentary Credits - International
standards of letter of credit practice established for bankers by the International
Chamber of Commerce. The UCP is constantly being revised to keep up with
changing practices. Although the UCP defines rights and obligations of the various
parties in a letter of credit transaction, it is not law and any given letter of credit is
subject to the UCP only to the extent indicated in the letter of credit itself.
Uniform Rules for Collections - International standards of draft collection
practice established for bankers by the International Chamber of Commerce. The
Uniform Rules are not law but are more properly viewed as a handbook for banks
used to establish common understanding of terminology and expectations.
Without Recourse - Negotiation of a draft, or other negotiable instrument, or
letter of credit documents without the normal warranty on the part of the seller of
the instrument/documents that the payer named in the instrument (the "drawee,"
"payer," or "maker") will pay. Although the seller is still responsible for the
genuineness of the instrument and documents, the purchaser takes on the credit
risk of being able to collect payment from the payer when due. Unless negotiation
is without recourse, the purchaser of the instrument/documents has the right to
recover the face amount from the seller if the payer/drawee fails or refuses to pay
for any reason.