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  • Here is the Trade Finance guide to terminology used across the trade, supply chain, commodity and agency finance markets. It is not a replacement for legal or financial advice and as the industry changes we will endeavour to update it. I shall start with the alphabet "A"....

    If you notice any omissions or would like to suggest any changes please email: [email protected]

 

 

 

Glossary "C"
Certified Invoice
  A Commercial invoice which also contains a statement by the exporter/seller which is required by the importer/buyer e.g. that the goods are in the order required or that the goods come from a specific country.
 
  Confirmation
  Telex advice of transaction giving full details on amounts, value dates, rates and payment mechanisms. Formal memorandum issued to the parties of transaction, recording (confirming) the details of the transaction.
 
  Cost and Freight, Free Out
  Includes the cost of the goods, freight charges and unloading. Most grain/sugar is traded on this basis.
 
  Claused Bill Of Lading
  A claused, or foul bill of lading contains notations or remarks as to defects in the goods and/or packaging. See Bill of lading and Clean bill of lading.
 
  Counter Trade
  Form of international trade popular amongst economies with low stocks of hard currency. Transactions work on the basis of exchange of goods rather than formal payment.
 
  Call
  A demand for payment under a loan or guarantee. In the case of demand guarantees, the abusive resort to the guarantee (i.e., in the absence of non-compliance by the principal) is sometime referred to as an unfair call.
 
  CBD
  Cash before delivery
 
  Certificate Of Inspection (also, certificate of quality)
  A document certifying the quality, quantity and/or price of a given shipment of goods. The inspection certificate is often required by buyers, especially those paying via documentary credit, from sellers, in order to assure that the goods are of contract quality. Generally, the buyer will designate a neutral, independent inspection company.
 
  CEDEL
  Institution centred in Luxembourg that acts as a clearing corporation for international securities as well as a variety of value-added information and products.
 
  CHAPS (Clearing House Automated Payments System)
  The UK banks' electronic cash transfer system for sterling payments and receipts.
 
  CHIPS (Clearing House Inter Bank Payment System)
  CHIPS is the New York Clearing House Interbank Payment System. It is an electronic banking system for automated payment and transfer of funds. CHIPS operates same day settlement.
 
  CIA
  Cash in Advance.
 
  CLD
  Cleared (through customs).
 
  Clearing House
  Adjunct to commodity/stock exchanges through which transactions executed on the floor are settled. Also charged with assuring the proper conduct of delivery procedures and the adequate financing of trading.
 
  Collateral
  An asset pledged by a borrower to a lender making a secured loan.
 
  Collecting Bank
  The "collecting bank" may be any bank, (other than the remitting bank) involved in processing the collection order. The collecting bank usually acts as agent of an exporter's bank in collecting payment from an importer. The collecting bank is usually situated in the importer's country.
 
  Collection
  Collection means the handling by banks on instructions received, of documents in order to: 1) obtain acceptance and/or payment 2) deliver commercial documents against acceptance and/or, as the case may be against payment, or 3) deliver documents on other terms and conditions.
 
  Commercial Paper
  Unsecured promissory notes issued by corporations at a discount to par to provide short term financing.
 
  Commission
  Pro-rata remuneration for work done as an agent. Brokerage can be charged according to an official minimum scale laid down by an Exchange.
 
  Commission Agent
  A foreign sales representative who is paid a percentage of the sales he or she generates. See also Agent and Foreign sales agent.
 
  Commitment Fee
  Fee charged by a bank on the unused portion of a loan or term note facility.
 
  Commodity
  In financial markets the main categories of commodity are grain, livestock, food and fibres, oil, wood, metals and bullion.
 
  Commodity Future
  Futures are traded for a range of underlying commodities such as grains, soya, meats, cotton, coffee, sugar and lumber. A future is an exchange-traded contract with standard specifications, for the purchase and sale of a quantity of an underlying item. 
 
  Commodity Swap
  The two parties exchange payments over successive periods representing the differential between the current price of a commodity and one agreed at the outset.
 
  Compound Duty
  A combination of both a specific rate of duty and an ad valorem rate of duty. Whereas specific duties are based on factors such as weight or quantity, ad valorem duties are based on the value of the goods. See customs duty.
 
  Counterparty
  The bank's opposite number in a financial transaction. The individual/institution on the opposite side of a financial transaction; the other party to a contract.
 
  Courtage (French)
  Brokerage; brokerage fee
 
  Cover Note (also, brokers cover note)
  An insurance document indicating coverage of a particular shipment under an open cover policy. To be distinguished, particularly as regards presentation under a documentary credit, from an insurance policy or an insurance certificate.
 
  CPT
  Carriage Paid To...(named point). See Incoterms.
 
  Credit
  Revolving credit with no fixed maturity date, which a bank has the option, once annually to convert into a term loan.
 
  Credit Risk Insurance
  Insurance designed to cover risks of non-payment for delivered goods.
 
  C/S
  Case(s).
 
  CSC
  Container service charge.
 
  Currency Future
  A contract for the future delivery of a commodity, currency or security on a specific date. In contrast to forward contracts, futures contracts are for standard quantities and for standard periods of time and are primarily traded on an exchanges. Forward transactions enable importers and exporters ' who will have to make, or will receive, payment in a foreign currency at a future time to protect themselves against the risk of fluctuations in the spot rate.
 
  Currency Option
  The contractually-agreed right to buy (call option) or to sell (put option) a specific amount of a foreign currency at a predetermined price on a specific date (European option) or up to a future date (American option).
 
  Customs Broker
  Licensed agent or broker whose function is to handle the process of clearing goods through customs for importers.
 
  Customs Union
  An association between two or more countries whereby they eliminate tariffs and other import restrictions on each other's goods and establish a common tariff on the goods from all other countries. The European Community -is the best known example of a customs union.
 
  CW
  Commercial weight.
 
  CWO
  Cash with order.
 
  CWT
  Hundredweight; unit of measurement.
 
  Cable Transfer
  An order transmitted by one bank to another bank in a foreign country with instructions to pay a specific amount to a designated person or account.
 
  Carnet
  (See ATA Carnets)
 
  CIP – Carriage and Insurance Paid to (…named place of destination)
  “Carriage and Insurance paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium.This term may be used irrespective of the mode of transport including multimodal transport.
 
  CIF – Cost, Insurance and Freight (…named port of destination)
  “Cost, Insurance and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller 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 of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage
 
  Cash Against Documents
  Payment for goods in which a bank, commission house or other intermediary transfers title documents to the buyer upon payment in cash. Full shipping documents are sent to a bank or an agent at the port of destination with instructions that they are to be handed over to the consignee only in exchange for the sum due.
 
  Cash with Order
  Payment in advance, whereby the buyer of the goods sends payment to the seller with his order for goods. It is the most secure method of payment for the seller.
 
  Certificate of Origin
  A document, required by certain foreign countries for tariff purposes, certifying the country of origin of specified goods.
 
  CFR – Cost and Freight (…named port of destination)
  “Cost and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller 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 of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CPT term should be used.
 
  Charter Party
  Contract under which the charterer has the use of the ship for the carriage of goods for a voyage or a certain time. It sets forth the terms of the arrangement such as freight rate and ports involved in the trip contemplated. Such a contract may also act as security for a loan to the shipowner from a bank. the money paid to the owner is known as Freight.
 
  Charterer
  Person who hires a vessel either on a voyage or time basis.
 
  Clean Bill
  (See Bill of Lading)
 
  Clean Collections
  Clean collection means collection of financial documents not accompanied by commercial documents.
 
  Clean Credits
  A Letter of Credit opened by a bank, guaranteeing payment of any Bills of Exchange drawn on that bank. These Bills have no supporting documents attached.
 
  Clean Transport Documents
  A clean transport document is one which bears no clause of notation which expressly declares a defective condition of the goods and for the packaging.
 
  Clearing System
  A system where bills of exchange, cheques etc. drawn upon individual clearing banks are settled.
 
  Commercial Documents
  "Commercial documents" means invoices, shipping documents of title or other similar documents, or any other documents whatsoever, not being financial documents.
 
  Commercial Invoice
  An itemised list of goods shipped, usually included among an exporter's collection papers. The commercial invoice is written evidence of the contract. A document evidencing demand by an exporter/seller for payment for goods sold.
 
  Common Carrier
  An individual, partnership or corporation that transport persons or goods for compensation.
 
  Common Law
  A legal system broadly based on previous court decisions, precedents or past practices.
 
  Confirming Bank
  A confirming bank confirms an irrevocable credit (qv) upon the authorisation or request of the issuing bank. Where an Advising Bank guarantees payment of a Letter of Credit, it is known as a confirming bank. the bank's role changes from a mere advisory role to a role of assuming liability for payment, acceptance or negotiation of the credit. Such liability if in addition to and not instead of that already given by the issuing bank.
 
  Confirmed Letter of Credit
  A letter of credit issued by the buyer's bank, Bank A, the validity of which has been confirmed by Bank B. An exporter whose payment terms are a confirmed Letter of Credit is assured of payment by Bank B even if the buyers or Bank A refuse payment. Payment under a confirmed Letter of Credit is guaranteed twice i.e. by both the Issuing Bank (Bank A) and the Confirming Bank (Bank B). Payment under a confirmed Letter of Credit is conditional under documents being presented in order.
 
  Consignee
  The party to whom the goods are dispatched.
 
  Consignment
  A term used of merchandise shipped to an agent abroad when an actual purchase has not been made but under an agreement by which the consignee is obligated to sell the goods for the account of the consignor. The act of transferring goods or delivering them for transport.
 
  Consignor
  Otherwise known as the shipper. This is the party who dispatches the goods and is usually but not always the beneficiary of the credit.
 
  Consular Declaration
  A formal statement made by the consul of a foreign country describing goods to be shipped.
 
  Consular Invoice
  A detailed statement regarding the character of goods shipped, duly certified by the consul at the port of shipment and required by certain countries.
 
  Contract of Carriage
  Determines the obligations of the shipper or the sender with respect to handling over the goods for carriage to the carrier.
 
  Correspondent
  In a bilateral deal or relationship, the provider of correspondent banking services. A bank having direct connection or friendly service relations with another.
 
  Correspondent Bank
  Bank that accepts deposits of and performs banking services for other banks, depository institutions in centers where the others are not physically represented. A bank that, in its own country, handles the business of a foreign bank.
 
  Cost and Freight
  (See CFR)
 
  CPT – Carriage Paid To (…named place of Destination)
  “Carriage paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been so delivered. “Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. This term may be used irrespective of the mode of transport including multimodal transport.
 
  Counter Credits
  Similar to back-to-back credits (qv). the only difference is that the merchant bank is involved with both credits i.e. as the advising/confirming/payment bank in respect of the first credit and as issuing bank in respect of the second credit.
 
  Country Risk
  The risk that the financial position of organisations in a particular country and their ability to pay debts could be affected by changes or developments in that country.
 
  Customs Duty
  Border tax usually levied on import.
 
  Credit
  Revolving credit with no fixed maturity date which a bank has the option once annually to convert into a term loan.
 
  Conference - (also, steamship conference, shipping conference)
  A group of steamship companies or shipping lines which have associated to offer regular service on specific routes at publicly-announced prices. Conferences generally offer specific rebates for regular or high-volume shipments. Shipment by conference lines is sometimes referred to as liner shipping and the freight rates are referred to as "liner terms". Shipping lines which are not members of a conference for a particular route are known as outsiders, independent lines, or non-conference liners. See also Liner terms.
 
  Confirmed Letter Of Credit
  A documentary credit issued by a foreign bank which has been confirmed by another bank (usually a local bank or an international leading bank), the confirmation consisting in: an additional irrevocable undertaking to pay according to the terms of the credit.
 
  Counterpurchase
  Counterpurchase is the agreement of an exporter to purchase a quantity of unrelated goods or services from a country in exchange for and approximate in value to the goods exported.
 
  Countertrade
  All foreign trade transactions resulting from exporters' commitments to take products from the importers or from their respective countries in full or part payment for their exports. Countertrade is typical of trade with East European and less developed countries, which often suffer from a lack of foreign exchange and/or credit facilities. Countertrade transactions include barter, buy-back or compensation, counterpurchase, offset requirements, and swap. See respective terms.
 
  Contingency Insurance (or "difference in conditions")
  Insurance coverage taken out by one party to an international transaction to complement and fill in any gaps in the coverage taken out by the counterparty. Thus, the open account exporter on FOB Incoterms does not have an obligation to insure the goods during the main international transport, but may wish in any event to take out contingency insurance so that if the goods are lost or damaged there will be no loss to the buyer (such a loss might lead to disagreements or disruption of commercial relations with the buyer, even if the seller was not legally at fault).


GLOSSARY 'B'

BACK-TO-BACK LETTER OF CREDIT
Two letters of credit normally involving the same bank which cover a single shipment of goods, involving a middleman. The second letter of credit is issued only because its issuing bank is happy that the first letter of credit represents good security. In practice this can be hazardous and many banks are unwilling to be involved in back-to-back transactions.

Goods and/or services are exchanged against other goods and/or services of equivalent value. No money changes hands between the buyer and seller. (See countertrade).

One hundredth of one percentage point (0.01%). 100 basis 
points = 1%.

The person (for example, the exporter) in whose favour the credit is issued.

BERNE UNION
The Berne Union is the leading association for export credit and investment insurance worldwide, working for cooperation and stability in cross-border trade and providing a forum for professional exchange among its members.

BID BOND
A bond provided by a bank to the buyer promising compensation, usually on demand, in the event that a supplier declines to enter into a contract in conformity with the bid he has put forward.

A trading agreement between two countries, neither of which has a hard currency, in which transactions are entered in clearing units instead of a fixed currency.

BILL OF EXCHANGE
An unconditional order in writing addressed by one person to another, signed by the person creating it (drawer), and requiring the addressee (drawee) to pay a certain sum of money to the drawer at a fixed or determinable future time .

BILL OF LADING
Issued by a shipping company to the shipper as a receipt for the goods, a memorandum of the contract of carriage and a document of title.

BLOCKED FUND LETTERS (BFL)
In cases where a fraudster has enticed an investor into a bogus scheme where the invested funds remain on deposit earning interest in the investor?s bank, the investor is told to obtain a blocked fund letter (BFL) from his bank. This letter promises to pay funds from the victim?s account to the holder of the letter.

The fraudster, often with the help of a third party such as a lawyer, obtains control of the BFL which he uses as collateral to get a loan at a bank of his choice. The fraudster can then default on the loan and flee. Under the BFL the issuing bank must pay the lending bank and the victim loses his money.

However, the banking community does not recognISe BFLs as banking instruments and they should not be issued by banks or accepted as collateral.

BOLERO
Bolero is a neutral secure platform enabling paperless trading between buyers, sellers, and their logistics service and bank partners. Solutions integrate the physical and financial supply chains, providing visibility, predictability, accuracy and security. This delivers improvements in operational efficiencies and reductions in working capital.

An agreement to buy products that will eventually be produced by the capital equipment supplied under the export sales agreement.

A financing arrangement under which a lending bank in the supplier?s country lends directly to the buyer or to a bank in the buyer?s country to enable the buyer to make payments due to the supplier under a contract.

BRIDGE FINANCING

Interim financing replaced by an ECA-backed or pre-export finance solution.

Glossary "A"

 ACCEPTANCE

The beneficiary presents its documents together with a bill of exchange payable at a future date stipulated in the credit. The bank accepts the bill of exchange by signing it, and returns it to the beneficiary. Acceptance of a draft obliges the acceptor to pay it at maturity.

ACP COUNTRIES
The 69 African, Caribbean and Pacific countries which signed the Lomé Convention.

ADVANCE COMPENSATION
A forward purchase.

ADVANCE FEE FRAUD
Advance fee fraud covers a variety of situations in which a fraudster persuades a victim to pay him an advance commission in connection with the arrangement of financial facilities. Before the victim realISes that the deal is a sham and that no facilities are available, the fraudster runs off with the commission.

A guarantee or bond provided by a bank to the buyer. The guarantee/bond undertakes to return to the buyer on behalf of the supplier, usually on demand, downpayments or progress payments made if the supplier fails to complete the contract.

A bank in the beneficiary’s country – usually a correspondent of the issuing bank – through which the issuing bank communicates the credit to the beneficiary. It may also be asked to confirm and/or pay the credit.

An annual fee payable by the buyer, usually to cover the costs incurred by the lender in administering the financing.

AGIO
The price increase over and above the market price of the traded goods and attributable to the extra costs involved in countertrading.

Any change made to the terms of a credit. The applicant initiates the amendment which then follows the same process as a letter of credit.

The buyer who applies for a letter of credit.

The assignment of a policy’s rights and benefits from the exporter to a lender.

AVAILABILITY
The date by which a set of documents has to, or will, be delivered to the forfaiter ready for discounting.

AVAL
An unconditional, irrevocable, divisible and freely transferable guarantee to pay the beneficiary on the due date.

AVALISING BANK
A bank in an importer’s country which adds its aval to notes or bills in a forfaiting transaction.

AVALOR
An institution or person acting as a guarantor.

An evaluation of the average time an asset will be outstanding given a specific repayment system.

 

 

The reality of the strict compliance rule

"You bankers are technicians. Your job is to compare the documents with thedocumentary credit, the UCP and the documents with themselves, none ofwhich requires any discretion on your part!" ............ read more