Copy of `AIB - Finance terms`

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AIB - Finance terms Category: Economy and Finance Date & country: 31/03/2011, UK Words: 71

D/A (documents against acceptance)
This refers to shipping documents which are presented to a bank on a collection basis to be passed to the buyer when he or she accepts a bill of exchange. The bank holds the bill of exchange until it ends (maturity) when they ask the buyer to pay the seller. See collections for a full explanation.

Validity Date
See Expiry Dates.

Warranty Bond/Guarantee
A guarantee issued by a bank on behalf of the seller which secures any claims by the buyer on the seller due to possible defects in the goods during any agreed warranty period

URC
Uniform Rules for Collections developed by the International Chamber of Commerce as the rules that govern the operation of collection transactions worldwide. ICC publication No.522 contains the details of the rules currently in use.

UCP
Uniform Customs and Practice for Documentary Credit developed by the International Chamber of Commerce as the rules that govern the operation of Letter of Credit transactions worldwide. ICC publication No.500 contains details of the rules currently in use.

Transhipment
This is when a consignment is unloaded from one form of transport (lorry or ship) to another during the course of its journey from place of origin to place of destination. In a letter of credit, the buyer can say whether this is allowed or not allowed.

Transferable Letter of Credit
A Transferable Letter of Credit allows the beneficiary to pass on the benefit of a Letter of Credit to one or more third parties. Normally used by companies that source rather than produce goods.

SWIFT
This is an inter-bank communication system and stands for Society For Worldwide Interbank Financial Telecommunications. Every message is sent in a standard format. This allows the banks' computers to read the messages and to keep the information in their computer systems. This helps to get rid of human errors and reduces the length of time it takes...

Standby Letter of Credit
A guarantee issued by a bank, on behalf of a buyer that protects the seller against non-payment for goods shipped to the buyer. The buyer pays the seller directly for the goods and only if the buyer fails to pay does the seller claim under the Standby Letter of Credit.

Silent Confirmation
In a normal confirmed Letter of Credit, the issuing bank will request the advising bank to add its confirmation. A silent confirmation occurs when the issuing bank has not requested the advising bank to add its confirmation but the bank does so at the request of the seller

Shipper
See Consignor

Protesting (a bill of exchange)
Protesting involves getting legal evidence that a bill of exchange or promissory note has not been paid.

Revolving Letter of Credit
A Letter of Credit in which the value of the Letter of Credit is automatically reinstated upon utilisation. A Letter of Credit may revolve by value, time or both. This type of Letter of Credit would be used where the seller is shipping goods on a regular basis to the buyer over an extended period.

Period of Presentation
The number of days from the shipment date that the seller is allowed to present documents to the advising or issuing bank under a Letter of Credit. It is normally 21 days, although it can be shorter.

Promissory Note
A signed undertaking from one party containing a promise to pay a stated sum to specified person or company at a specified future date

Performance Risk
The risk that the buyer or seller will not complete the contract in accordance with their contractual obligations.

Performance Bond/Guarantee
A guarantee issued by a bank, on behalf of a seller to a buyer, to support the sellers ability to perform under the contract. If the seller fails to perform in accordance with the contract the buyer can claim compensation under the guarantee.

Partial shipment
This is when a load is sent in more than one consignment. In a letter of credit, the buyer can say whether this is allowed or not allowed.

Open account
This is a trading term between buyer and seller where a seller agrees to deliver goods to a buyer before a payment is made and without any form of guarantee of payment.

Noting (on a bill of exchange)
Noting is a preliminary form of protesting a Bill of Exchange - that is - an initial official statement that the bill of exchange or promissory note has not been paid.

Non-Recourse Discounting
The purchase from the seller of accepted term Bills of Exchange at a discount to allow for the funding of the advance from the discount date until the maturity date of the bills. When the discount is provided on a non-recourse basis the financing bank has no recourse to the seller in the event of non-payment by the buyer or the buyers bank

Negotiation
The process by which a negotiable instrument such as a Bill of exchange, Promissory Note or Cheque is transferred in good faith and for value. Negotiation only occurs when the transferring party receives value. In international trade this is normally an exchange of funds or a commitment to pay

Nominated Bank
See Availability

Negotiable Instrument
A negotiable instrument is any document, which permits one party to transfer their rights to a second party by endorsing and delivering the document to the second party. An instrument is only fully negotiable when the party transferring it receives value and the party receiving the document can obtain a stronger legal position than the party transf...

Maturity Date
The date on which a Bill of Exchange or Letter of Credit becomes due for payment.

Marine Insurance
An insurance policy arranged by either the buyer or the seller to insure goods against damage in transit. The appropriate Incoterm will determine the responsibility of the buyer or seller to arrange the insurance.

Latest Shipment Date
A date inserted in a Letter of Credit to compel the seller to ship the goods within a specific time period

Letter of credit
This is an irreversible guarantee given by the buyer's bank to pay a specific amount of money immediately or on a future date to the seller when he or she presents specific documents before a certain date and under the International Chamber of Commerce rules.

Issuing Bank
The bank that issues a Letter of Credit on behalf of the Importer.

ISP98
International Standby Practices (ISP98) developed by the International Chamber of Commerce as the rules that govern the operation of Standby Letter of Credit transactions worldwide.

Irrevocable Letter of Credit
This is a letter of credit that cannot be changed or withdrawn or revoked without everyone involved agreeing (buyer, seller and banks).

Guaranteed Bill of Exchange
A Bill of Exchange is an unconditional order in writing, drawn up by the seller, asking the buyer to pay a specific amount of money at a future date. It becomes guaranteed if, after the buyer accepts the Bill, the buyers bank adds its guarantee that the bill will be paid at maturity.

Foreign currency drafts
These are special foreign currency denominated bank cheques which customers can buy at any branch and send to their clients to pay off debts.

Guarantee/Bond
See Advance Payment Guarantee, Bid Bond/Guarantee, Performance Bond/Guarantee.

Financial Documents
See Bill of Exchange and Promissory Note

Financing
See Discounting

FOB (free on board)
This is an INCO term and explains what the price quoted represents and the responsibility of the buyer and seller in relation to arranging for the various costs associated(e.g. insurance, freight, duties) with the shipment. It is normally used in sea shipments.

Export Credit Insurance
See Debtor Insurance

Expiry Date (Guarantee)
The last day on which the beneficiary can present a valid claim to the bank.

Expiry Date (Letter of Credit)
The last day on which the seller can present documents to the advising or issuing bank.

Ex works
This is an INCO term and explains what the price quoted represents and the responsibility of the buyer and seller in relation to arranging for the various costs associated(e.g. insurance, freight, duties) with the shipment. It is normally used in road transport but can also be used for a combination of transport methods when the goods are to be col...

eUCP
Supplement to Uniform Customs and Practice for Documentary Credits which governs electronic presentation of data under Letters of Credit

Drawee
The party to which a Bill of Exchange is addressed for payment or acceptance. Usually, the Importer in an international trade transaction. In a Letter of Credit transaction it may be the issuing or advising bank.

Drawer
The party that issues a Bill of Exchange. Usually, the Exporter in an international trade transaction.

Dishonour
The refusal to pay or accept a Bill of Exchange.

Documentary Collection
See D/P and D/A.

Documents of Title
Documents that confer the status of ownership upon the holder of the document e.g. the holder of a correctly endorsed bill of lading has effective ownership of the goods

Draft
This can refer to a bank cheque (as opposed to a customer cheque) or it can refer to a bill of exchange.

Discrepancy
Where documents presented by an Exporter under a Letter of Credit do not comply with the terms of the Letter of Credit or are inconsistent with other documents presented.

Discounting
The purchase of accepted term Bills of Exchange at a discount to allow for the funding of the advance from the discount date until the maturity date of the bills.

Credit Risk
The risk that a buyer or seller will not complete a deal due to their inability to meet their obligations, or a deterioration in their financial position.

Deferred Payment Credit
A Letter of Credit payable at a future determinable date in which a term Bill of Exchange is not required to evidence the maturity date. (see Acceptance Credit).

Confirming Bank
See Confirmed Letters of Credit

Consignee
The party on a transport document to whom the goods are addressed for delivery

Consignor
The party on a transport document on whose behalf the goods are being shipped

Confirmed letters of credit
This is where a bank other than the issuing bank also guarantees payment under the letter of credit. It normally is used if a seller finds the issuing bank an unacceptable risk and asks his or her own bank or another acceptable bank to guarantee (confirm) the issuing bank's letter of credit. See letters of credit for a full explanation.

Collection letter
This is the covering form or letter sent by a bank or seller requesting that the enclosed shipping documents and/or bill of exchange be released to a buyer against acceptance or payment.

Collection
This is where a seller sends documents relating to a shipment through his or her bank to the buyer's bank asking that they are released when a payment is made (CAD or D/P) or a bill of exchange is accepted (D/A).

CIF (cost, insurance and freight)
This is an INCO term and explains what the price quoted represents and the responsibility of the buyer and seller in relation to arranging for the various costs associated(e.g. insurance, freight, duties) with the shipment. It is normally used in sea or air shipments.

Carrier
Person or company hired for the conveyance of goods e.g. shipping company

CFR (C & F or cost and freight)
This is an INCO term and explains what the price quoted represents and the responsibility of the buyer and seller in relation to arranging for the various costs associated(e.g. insurance, freight, duties) with the shipment. It can be used in sea, road or air transport.

Bill of exchange
This is an unconditional order in writing drawn up by the seller asking the buyer to pay a specific amount of money immediately or at a future date.

Bid Bond/Guarantee
A guarantee issued by a bank on behalf of a seller to a buyer to support the sellers bid or tender for a contract. If the sellers bid is accepted, and they fail to sign a contract, the buyer can claim compensation under the guarantee.

Avalize
The process by which a third party, usually a bank guarantees the undertaking of the drawee to meet their responsibility under a Bill of Exchange. The words "Per Aval" and the signature of the avalizing (guarantor) party must be written on the Bill.

Beneficiary
The Exporter in a Letter of Credit, or the party authorised to claim from a bank under a Guarantee/Bond.

Amendment
A change in the terms to a Letter of Credit that is already issued. Such changes can only be made with the agreement of all parties to the Letter of Credit.

Applicant
The Importer who applies to an issuing bank for a Letter of Credit, or a Guarantee/Bond

Availability
A term used in Letters of Credit to indicate the bank nominated by the issuing bank to pay, accept, incur a deferred payment, or negotiate the Letter of Credit on their behalf. Sellers should ensure the Letters of Credit are available with one of their relationship banks

Advance Payment Guarantee
A guarantee issued by a bank, on behalf of a seller to a buyer, in relation to any advance payment that is made by the buyer to the seller to allow the contract to commence. If the contract is not completed the buyer can claim reimbursement of the advance payment under the guarantee.

Acceptance Credit
A Letter of Credit which includes a term bill of exchange in its required documentation. The bill will be accepted by the bank on which it is drawn, usually the issuing or advising bank, and the proceeds paid to the beneficiary at maturity.

Acceptance
Refers to the commitment by an Importer, evidenced by their accepting a Bill of Exchange drawn on them by an Exporter, to pay for goods at a fixed date in the future.