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Glossary of Terms

Acceptance

A draft in which the unconditional obligation of the individual, company or bank upon whom it is drawn has been acknowledged in writing on the face of the instrument. Upon acceptance, it becomes a liability of that individual, company or bank.

Advised Letter of Credit

A letter of credit transmitted incoto the seller by a bank which is not adding its confirmation. The advising bank is under no obligation to pay the seller until it receives funds from the issuing or reimbursing bank.

Advising Bank

A bank in the beneficiary’s locale which transmits the letter of credit to the beneficiary, without responsibility for payment.

Air Waybill

The forwarding agreement between the shipper and air carrier which evidences a contract for delivery of and title to the merchandise.

Airway Release

An indemnity which is issued to protect the carrier against possible losses or damages arising from the release of the merchandise to the receiving party. It is specifically used when goods arrive at the airport of destination (via plane) before the related documents arrive at the issuing or collecting bank.

Applicant/Account Party

The person or entity who applies for a letter of credit to support its obligations to the beneficiary.

Back-to-Back Letters of Credit

A letter of credit issued for an account party using a previous letter of credit as collateral. The two letters of credit have identical documentation requirements, except for a price difference on the merchandise. The price can be found on the invoice and the draft.

Bankers’ Acceptance

A time draft that is accepted by a bank. It is a negotiable instrument which may be readily used to obtain immediate funds by being discounted at the drawee bank.

Beneficiary

The person or entity in whose favor a letter of credit is issued.

Bill of Lading

A bill of lading is a receipt for merchandise, a contract to deliver merchandise and a title document. It is issued by a carrier and furnishes written evidence for the conveyance and delivery of merchandise sent by sea to a particular destination.

Bill of Sale

A written instrument evidencing transfer of title to specific merchandise to a buyer.

Bonded Warehouse

A federally approved building which is authorized to store goods without payment of duties until removal.

Carriage and Insurance Paid (CIP)

See INCOTERM definitions.

Carriage Paid to (CPT)

See INCOTERM definitions.

Cash Against Documents

A payment arrangement whereby documents transferring title are given to the buyer upon payment of cash to an intermediary bank.

Cash in Advance

A payment arrangement whereby the buyer pays the seller prior to the shipment of merchandise.

Certificate of Inspection

A document used to verify the condition of the merchandise immediately prior to shipment. Typically used for perishable goods.

Certificate of Origin

A document that certifies the country in which the goods were manufactured. It is required for tariff purposes.

Clean Bill of Lading

A bill of lading which bears no clause or notation which expressly declares a defective condition of the goods and/or the packaging.

Clean Draft

A draft to which no documents are attached.

Collecting Bank

A bank which presents the documents and the draft to the importer to obtain payment or acceptance as part of a documentary collection.

Collection

The handling of documents by banks for delivery against either payment or acceptance of financial instruments or commercial documents, upon instructions received by their customer.

Common Carrier

An individual or organization which transports people or commodities from place to place. They are governed by specific regulations related to the carrier type and must accept all business offered them within their regulations.

Confirmed Letter of Credit

A Letter of Credit bearing the obligation of a second bank, usually in the beneficiary’s country, in addition to that of the issuing bank. The foreign country risk as well as the undertaking of the issuing bank is assumed by the confirming bank to honor drafts and/or documents presented in accordance with the terms of the letter of credit.

Consignee

The person named in a bill of lading/air waybill as the person to whom the goods are to be delivered.

Consignment

The transfer of goods under an arrangement whereby the consignor (seller) remains owner of the property until the consignee (buyer) pays for the goods. The consignee acts as an agent by selling the goods and then remitting the proceeds to the consignor.

Consignor

The person named in a bill of lading as the person from whom the goods have been received for shipment.

Consular Invoice

A detailed statement prepared by the exporter, regarding the character of goods shipped which is duly certified by the consul at the port of shipment. The consul’s certification applies to the value of the merchandise, the port of shipment, the destination and the place of actual origin of the merchandise.

Convertibility

The ability of a currency to be exchanged for gold or another currency in the open market.

Correspondent

A bank that carries on business relations for another bank and it’s customers throughout the world.

Cost and Freight (CFR)

See INCOTERM definitions.

Cost, Insurance and Freight (CIF)

See INCOTERM definitions.

Cross Border

Used to describe a transaction when the two parties are located in different countries.

Customs Broker

An agent for the importer who receives shipping documentation from the bank, clears the goods upon arrival and arranges for delivery of goods to the importer.

Customs Invoice

A document that includes a declaration by the seller as to the value of the goods.

Deferred Payment Letter of Credit

A letter of credit under which the payment is due at a specified later date (i.e. a draft is not required).

Delivered At Frontier (DAF)

See INCOTERM definitions.

Delivered Duty Paid (DDP)

See INCOTERM definitions.

Delivered Duty Unpaid (DDU)

See INCOTERM definitions.

Delivered Ex Quay (DEQ)

See INCOTERM definitions.

Delivered Ex Ship (DES)

See INCOTERM definitions.

Demurrage

A storage charge that is assessed if merchandise is held at a port or airport longer than the agreed upon time.

Devaluation

A lowering of the trade value of a currency with respect to other currencies.

Discrepancy

A notation in a document which prevents the document from conforming to the terms and conditions of a letter of credit, to the most recent version of the UCP, or from being consistent with the other required documents.

Dishonor

A refusal by the drawee to accept a financial instrument.

Dock Receipt

A certificate issued by an ocean carrier or its agent for merchandise delivered to its dock or warehouse while the goods are awaiting shipment.

Documentary Draft

A draft or bill of exchange to which documents are attached.

Documents Against Acceptance

Documents which are to be released to the buyer upon the buyer’s acceptance of a time draft.

Documents Against Payment

Documents which are to be released only upon payment by the buyer.

Draft

A written order (negotiable instrument) issued by a bank or seller(drawer) against another bank or importer(drawee), with payment made to a specified third party, called the payee. Also called a Bill of Exchange.

Drawee

The party that is expected to pay a check or draft when presented for payment.

Drawer (maker or writer)

The party providing instructions to payanother person or entityby writing a check or draft.

Duty

Government taxes levied on imports or exports or on the use and consumption of goods.

Ex Works (EXW)

See INCOTERM definitions.

Exchange Risk

The risk of fluctuation in the value of an asset or liability denominated in a foreign currency due to the fluctuation in exchange rates over time.

Ex-Im Bank

The Export-Import Bank of the United States (Ex-Im Bank) was created in 1934; It is an independent U.S. Government agency with the primary purpose of facilitating the export of U.S. goods and services. Ex-Im Bank meets this objective by providing loans, guarantees, and insurance programs on market-related credit terms.

Export

The process of selling goods and servicesabroad.

Export Credit Insurance

An insurance policy offered by either a public or private organization, that provides coverage against losses for various contingencies on export sales, including but not limited to political and commercial risks.

FCIA (Foreign Credit Insurance Association)

An association of private insurance companies which underwrite political and commercial risks.

Foreign Exchange

The simultaneous purchase of one currency and sale of another for immediate or future delivery (conversion of one currency into another).

Foreign Sales Corporation (FSC)

A foreign incorporated entity owned and established by a U.S. exporter or group of exporters to take advantage of certain tax exemptions.

Forfaiting

The purchase of acceptable trade receivables from the exporter, without recourse.

Forward (Future) Contract

An agreement for the purchase or sale of foreign currency at a fixed rate with delivery at a specified time in the future.

Free Alongside Ship (FAS)

See INCOTERM definitions.

Free Carrier (FCA)

See INCOTERM definitions.

Free on Board (FOB)

See INCOTERM definitions.

Free Port

A place where merchandise is imported or exported free of any duty and is open to all traders on equal terms.

Free Trade Zone

An area outside of any U.S. customs jurisdiction.

Freight Forwarder

A person, other than a carrier, who, in the performance of contracts, transports property for the general public by employing the services of rail, water and other carriers.

Hedging

The purchase or sale of foreign currency, usually on a forward basis, the purpose of which is to fix a rate in order to avoid or minimize a loss in the event of a change in the foreign exchange rate.

Import

The process of purchasing goods and services from abroad.

INCOTERMS

An acronym for International Commercial Terms; INCOTERMS are a set of foreign trade terms defined by the International Chamber of Commerce which specify responsibility for the cargo and responsibility for costs.

Inspection Certificate

See Certificate of Inspection.

Issuing Bank

The bank that opens a letter of credit (the applicant’s bank).

Letter of Credit

A written document issued by the account party's bank, authorizing the beneficiary to obtain payment in accordance with certain terms and conditions. A bank's credit is substituted for that of the applicant/account party.

Lighterage

The cost of loading or unloading a ship by means of barges alongside the vessel.

Multi-Modal

A shipment of merchandise to a point of destination on more than one mode of transportation.

Negotiation

A function that includes reviewing the documents presented for payment under a letter of credit to ensure compliance with the terms and conditions specified in the credit, plus the purchase of those documents by the negotiating bank.

Nostro Account

A deposit account maintained at another bank.Also known as a "due from account."

Open Account

A payment arrangement under which the seller ships the merchandise to the buyer with no guarantee of payment.

Packing List

A record of all goods and related details contained in a parcel.

Payment Order

An instruction to make a disbursement to one or more third parties.

Pro Forma Invoice

A bill forwarded by the seller to the buyer of the merchandise prior to shipment.

Rate of Exchange

The amount upon which the currency of one country will be exchanged for that of another.

Red Clause Letter of Credit

A letter of credit that contains a statement authorizing advances on an unsecured basis to the beneficiary before shipment of the underlying goods.

Remitting Bank

A bank which, on behalf of the exporter, forwards documents to the importer’s country for collection through a collecting bank.

S.W.I.F.T.

The Society for Worldwide Interbank Financial Telecommunication: A secure network used for payments, information and letters of credit.

Settlement Date

The date on which funds are considered transferred and are available for use by the receiving party.

Sight Draft

A draft that is payable on demand when presented to the drawee.

Spot Exchange

A contract for the purchase or sale of one currency for another at a fixed rate. A spot exchange typically has a two day delivery period.

Stand-By Letter of Credit

A letter of credit which most often is designed to be drawn on by the beneficiary if the applicant defaults or does not perform according to the terms of the underlying agreement.

Steamship Guarantee

An indemnity which is issued to protect the carrier against possible losses or damages arising from the release of the merchandise to the receiving party. It is specifically used when goods arrive at the port of destination (via ocean vessel) before the related documents arrive at the issuing or collecting bank.

Tare

Weight of the container or package in which merchandise is contained.

Tariff

A customs charge on goods being imported.

Telex

An international telegraphic message transfer service which exchanges textual communications and data. Telex was the principal international electronic communications network used by banks before the advent of SWIFT.

Tenor

The length or term of a time draft.

Tested Telex

A telex message that has been authenticated by means of a confidential code.

Time Draft

A draft that is payable at a fixed or determinable future date.

Trade Acceptance

A draft accepted by the buyer, which is sent with the shipment of goods, requiring the buyer to pay the seller at a specific date and place.

Transferable Letter of Credit

A letter of credit in which the beneficiary is permitted to transfer some or all of its rights to draw on the letter of credit to one or more parties, as indicated.

Transshipment

A shipment of merchandise to the point of destination on more than one vessel, however it must be the same mode of transportation.

Trust Receipt

An agreement between a bank and a buyer in which the bank releases merchandise to the buyer, but retains title. The buyer is obligated to keep the goods and any proceeds received from their sale, separate from the rest of their assets and subject to repossession in the event that the buyer does not comply with the conditions in the trust agreement.

Uniform Customs and Practice for Documentary Credits (U.C.P.)

A set of rules for letters of credit used by all major trading countries. They were developed by the International Chamber of Commerce with the help of banking associations from around the world.

Vostro Account

A deposit account maintained by another bank. Also known as a "due to account."

Warehouse Receipt

A receipt issued for goods received, by a person engaged in the business of storing goods. It gives evidence of one’s authority to receive, hold and dispose of the documents and goods. The holder is obligated to keep the goods safe and deliver them upon surrender of a properly endorsed receipt and payment of storage fees.

Wire transfer

The electronic transmission of funds between banks for settlement of international payments.

Contact our International Trade team at 888.461.1864 or international@nationalpenn.com.

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