Here is a glossary of international trade terms. Thanks to Credit Today's Credit and Collection Handbook for many of these entries.

Advice of a Letter of Credit: A notice from a bank verifying that an authentic letter of credit was issued by another bank, specifying the dollar amount of that letter of credit, the beneficiary and the other particulars.

Advising Bank: A correspondent bank of the issuing bank; the advising bank operating in the exporter's country receives a letter of credit or amendment(s) from the issuing bank. The advising bank notifies the seller of the existence and the authenticity of the Letter of Credit.

Related articles & resources:

Six Changes to Letter of Credit Rules and Some Practice Tips to Help You Navigate

Taking the Mystery Out of Letters of Credit

Venturing Into International Waters: An Export Primer for Credit Managers

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Air Waybill [of lading]: A shipping document used by airlines for airfreight shipments. A signed receipt and contract to deliver goods by air. The air waybill contacts a description of the product, as well as shipping instructions. Generally, air waybills are not negotiable.

Amendment: A document confirming a change to the terms or conditions of a Letter of Credit. The opening bank makes amendments at the request of the seller with the approval of all parties including the applicant; the issuing bank, the beneficiary, and the confirming bank [if one exists].

If you receive an LC that is not correct, ask for changes. It is not always easy to get them, but without a workable LC, you jeopardize your payment. If you can't comply with the terms, the buyer has to approve the payment. A $50 amendment is much cheaper than a payment delay or rejection! From Credit Today newsletter

Assignment: An assignment [such as an assignment for the benefit of creditors] involves the transfer of property rights or title to another party by agreement-usually made in writing.

Bill of Lading: A document issued by a carrier to a shipper/seller evidencing the receipt of goods for shipment. A bill of lading is also a contract between the owner of the goods and the carrier. It is both a receipt for merchandise and a contract to deliver the merchandise as freight. In some forms, a bill of lading may also represent title to the goods.

Bonded Warehouse: A warehouse authorized by local customs authority where goods are stored until the import duties are paid [if an incoming shipment is involved], or until the goods in question are exported.

Cash Against Goods: Here, the seller ships his goods to a warehouse, which holds the controlling documents until evidence of payment is produced. The seller has good assurance that payment will be made before the buyer receives the goods. However, the prudent credit professional takes care to be sure the buyer is able to pay for the goods once they arrive. Also, the seller should make a thorough investigation into the reputation of the warehouse. Additionally, the seller must be aware of local commercial laws to be sure that he is not opening himself up to local taxation. Related article: A Primer on International Trade Terms: Nine Ways to Get Paid

Cash in Advance: Cash in advance is least risky to the seller and most risky to the buyer. The advantages to the seller are clear: no credit risk, no foreign exchange risk, and low transaction costs. However, this term may be commercially noncompetitive: some countries may prohibit payments in advance, and the buyer must be willing to assume the risk of never receiving the goods. Additionally, the seller should allow sufficient time for the check to clear before sending the goods. Wire transfer is the quickest and safest way to receive funds. From Credit Today newsletter

CFR: ("Cost and Freight") An Incoterm requiring that the seller bear the cost and freight needed to deliver the goods at the named port of shipment. The risk of loss or damage one the goods have passed over the ship's rail passes to the buyer at that point.

CIF: The acronym for Cost, Insurance, and Freight, CIF terms mean that the seller has the same responsibility as under CFR but the seller also must contract for and pay for maritime insurance against loss or damage to the goods while in transit to the named port of destination.

Thanks to Credit Today's Credit and Collection Handbook.

Claused Bill of Lading: A bill of lading that contains notations indicating the goods or the packaging were damaged in transit.

Clean Bill of Lading: A receipt for goods issued by a carrier with an indication that the goods were received in good condition with no damage apparent.

Collecting Bank: The bank that acts as an agent for the seller in collecting either payment, or a time draft from the buyer and forwarding it to the seller or the seller's bank.

Commercial Invoice: This is a bill for the goods from the seller to the buyer. It is used to determine the true value of the goods so that the importer can pay any applicable local taxes on the import.

Common Carrier: An individual, partnership, or corporation that transports goods in return for compensation. Carriers typically include steamship companies, trucking companies, overnight delivery services, airlines, and railroads.

Confirmed Irrevocable Letters of Credit: Confirmed irrevocable letters of credit give the seller the benefit of transferring the risk of payment from the buyer to a known, confirming bank. The bank transmits funds upon the seller's presentation of documents in conformance with the letter of credit. As an added level of comfort, a confirming bank- one which is known to the seller-adds its confirmation to the letter of the buyer's bank (AKA the opening bank). The disadvantages to the seller are the high costs and sometimes complicated documentation. If a seller decides to ship under letter of credit terms, it is important to review the letter of credit carefully to ensure the viability of all shipping and documentation terms. Related Resources: A Primer on International Trade Terms: Nine Ways to Get Paid

Confirmed Letter of Credit: A letter of credit to which a second bank adds its pledge or guaranty of payment in the event of payment default by the issuing bank for reasons other than a discrepancy.

Consignee: The party to whom goods are shipped by the seller. The firm or person authorized to receive the cargo.

Consignment Terms: Consignment, or floor plan, terms are not unheard of in international trade. The advantages are that this method may be commercially competitive, and the seller may be able to recover goods not sold and paid for. However, the seller must be sure of local laws concerning transference of title and taxation. The cost of periodic inventory checks also may affect your decision about whether to use consignment terms.From Credit Today newsletter

Consular Documents: A document such as a bill of lading, certificate of origin or other document such as a special, detailed invoice form signed by the consul of the exporting country-normally in the language of that country. Consular documents are used by customs officials in the importing country to verify the value of the shipment.

Consular Invoice: Required by some countries but not others, this documents is used to identify the goods being shipped [exported]. The country's consul or embassy must approve consular invoices.

Cost and Freight [C&F Named Port]: All cost of goods and transportation to the named port are to be included in the price quoted by the seller to the buyer. The buyer is responsible for insurance while the goods are aboard the ship.

Cost of Goods Sold: The cost of producing finished goods including materials and labor.

Thanks to Credit Today's Credit and Collection Handbook

Discrepancy: Any non-compliance of documents with the terms and conditions contained in the Letter of Credit [L/C] is a discrepancy. A discrepancy also exists if the documentation is presented after the deadline.

The vast majority of letter of credit presentations result in discrepancies in which the Beneficiary's presentation documents fail to comply exactly with the terms of the letter of credit.

When there are discrepancies, the documents may be held by the Issuer, and the Applicant is asked to waive the discrepancies. For example, the Applicant may choose to waive the discrepancy in a commercial letter of credit in order to receive goods not yet released.

If the Applicant has already received the goods and is in payment default, there is less incentive for the Applicant to waive any discrepancies. If there is no waiver by the Applicant, the documents are returned to you (the Beneficiary) without payment.

When documents contain discrepancies, the exporter has 4 options:

1. Correct the discrepancies and re-present the documents to the bank.

2. Cable for approval (bank sends a SWIFT message; documents are released when approval is received).

3. Send documents on approval (documents are couriered to issuing bank and held for approval).

4. Withdraw the presentation and go to plan B.

The only option that provides the exporter with the full risk protection of an LC is option 1. All of the other options leave the payment decision in the hands of the buyer, which means that you have a very expensive open account transaction on your hands. Unless the discrepancies are not correctable (such as missing the latest ship date), it is always advisable to correct the documents and re-present them. Then the risk protection and payment timing stays intact. From: Top Ten Misconceptions About Export Letters of Credit

Related articles & resources:

Six Changes to Letter of Credit Rules and Some Practice Tips to Help You Navigate

A Wolf in Sheep's Clothing: Avoiding the Hidden Perils of International Distribution

You Take the Gavel: A Letter Of Credit: The Case of the Misspelled Beneficiary

Taking the Mystery Out of Letters of Credit

Venturing Into International Waters: An Export Primer for Credit Managers

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Documentary Letters of Credit: A documentary letter of credit is a letter of credit issued by a bank guaranteeing payment of the specified dollar amount on behalf of its customer to a third party creditor provided that the terms and conditions of the letter of credit are fully complied with. The buyer is guaranteed payment only if the conditions stipulated in the letter of credit are fulfilled.

Documentation Requirements: On a letter of credit, documentation requirements often include invoices, drafts, a bill of lading, certificates of origin, a marine insurance policy, inspection reports and or statements from the shipping party.

Documents against Payment: Also referred to as a time draft, documents against payment involve instructions that a shipper gives to its bank that the documents attached to a draft are deliverable to the drawee [the buyer] only against a payment of the draft.

Exchange Rate: The number of units of one currency that must be exchanged for one unit of another currency.

Thanks to Credit Today's Credit and Collection Handbook

Free on Board [or F.O.B.]: A shipment for which the seller is responsible for transportation and shipping costs to the point where the goods are delivered to and loaded onto a carrier.

Freight Forwarder: An international shipping specialist. Freight forwarders act as the seller's agent to help move cargo from origin to destination. A freight forwarder can offer advice, compile and control documents, and arrange for shipments.

Guanxi: Quanxi is the term often used to express the cultural differences that affect doing business in China vs. the West. Guanxi describes the interplay of a complex network of personal and social relationships. It can be understood in terms of it not being just what you know, but also whom you know. This is still a central concept in Chinese society.

Editor's Note: Thanks to William Bastiaan, CICE, Director of Global Markets at ABC-Amega for this definition. Please see his article

Chinese Credit Management: Any progress made? for further information.

Import Certificate: The certificate is a method by which the government of a country can exercise control over what is being imported into the country. In some instances and in some countries products cannot be imported without an import certificate.

Import License: A document required by some national governments authorizing the import of goods or commodities into the country.

Incoterms: Standardized international trade terms devised with the intent of providing a common language and set of definitions for international buyers and sellers. The codification of certain terms by the International Chamber of Commerce to define which parties incur certain costs and at what point specific costs or risks are incurred.

Inspection Certificate: A certificate, usually issued by an independent third party, attesting that the goods to be shipped to the buyer conform to the order.

Irrevocable Letter of Credit: A Letter of Credit that cannot be modified or canceled without the consent of the buyer, the seller, the issuing bank, the advising bank, and the confirming bank [if applicable]. An irrevocable LIC is one in which the buyer's bank must pay even if the buyer defaults.

Under the New UCP 600 - Unless otherwise stated, the letter of credit is irrevocable. (For Confirming Banks, it is suggested that the credit be specified as irrevocable).

Issuing Bank: The bank that issues the Letter of Credit and agrees to make payment in accordance with the terms of the LIC provided that the beneficiary submits documents that conform to the LIC requirements within the time line described in the LI C.

Latest Date to Present Documents: Relating to a Letter of Credit, documents must arrive at the negotiating bank within 21 days from the latest shipping date but before the expiration date of the Letter of Credit.

Latest Ship Date: Relating to a letter of credit, the shipping documents must be dated on or before the latest ship date.

Thanks to Credit Today's Credit and Collection Handbook

Letter of Credit: An internationally recognized contract drawn between a buyer, a seller, and the buyer's bank and issued at the request of the buyer.

Review the draw terms and conditions of the letter of credit - keep it simple!

Tips-

• Provide your customer with a sample of a letter of credit acceptable to you.

• Confirm the solvency of the issuing/confirming bank.

• Make sure that the expiry date is well beyond the due dates of any invoices.

• If possible, make your draw(s) well in advance of the expiry date.

• If the Issuer is overseas, insist on a U.S. Confirming Bank.

Marine Bill of Lading: An insurance policy covering loss or damage to goods while at sea.

Ocean Bill of Lading: This is both a receipt for cargo and a contract for the transportation of that cargo between the shipper and the ocean carrier. The steamship company issues this document.

Open Account Terms: Open account terms are becoming more common as sellers are becoming more comfortable with international trade. Documentation is easy and transaction costs are low. The seller needs to thoroughly investigate the creditworthiness of the buyer as well as study the economic stability of the country of the buyer. From Credit Today newsletter

Opening Bank: Relating to a letter of credit, the opening bank issues the letter of credit at the request of the buyer.

Thanks to Credit Today's Credit and Collection Handbook

Packing List: A document that lists and describes to the buyer the merchandise contained in the box.

Pagare: -- a Mexican guarantee or promissory note

For more information, see our article Selling in Mexico? Consider Using Pagares - Here are the Five Keys

Payment on Sight, or at Sight: Payment on demand.

Political Risk: In export transactions, political risk involves the possibility of expropriation or confiscation of assets, war, changes in tax policy or foreign policy, restrictions on the exchange of foreign currency, and other changes that heighten the risk of late payment or payment default.

While political risk here in the U.S. is minimal, in some foreign countries, it can be significant. A country's political situation may impact your ability to conduct business.

In understanding political risk, you should know:

• How a potential "regime-change" might impact your business.
  

• How the foreign country's legal system works and what the potential is for equitable recourse in that country.
  

• The tariffs or duties on importing certain items.
  

• The documentation (import) requirements. This could include original commercial invoice with values per unit, bills of lading, certificates of origin, tariff numbers, etc. In some countries, the documentation requirements could be quite stringent.
  

• In some countries the bribery and corruption level may impede the ability of a U.S. firm to generate business.

Pro-Forma Invoice: An invoice forwarded by the seller of the goods prior to shipment that advises the buyer of the details of the sale. A Pro-forma invoice may be required by the buyer in order to obtain an import license or a letter of credit.

Revocable Letter of Credit: A Letter of Credit that can be changed [amended] at any time [even after shipment] by the buyer unilaterally without the approval of the seller/beneficiary. This type of L/C is rarely used because it is considered to be of little or no value to the creditor.

Sovereign risk: Sovereign risk includes assessing the creditworthiness of a country's national government. While sovereign risk isn't something you think about when extending credit in the U.S., it can be a very significant factor in foreign countries. Things to determine are:

• Try to find out the potential for political changes that may result in the official seizure by a government of private property. The ability to receive full payment can be impacted by the relations between the United States government's relations with the foreign country's government.

• Budget deficits, balance of payments, IMF-rating and external debt situations should be included in the assessment of a country's sovereign risk.

  Try to find out the potential for political changes that may result in the official seizure by a government of private property. The ability to receive full payment can be impacted by the relations between the United States government's relations with the foreign country's government.

• Budget deficits, balance of payments, IMF-rating and external debt situations should be included in the assessment of a country's sovereign risk.

Standby Letter of Credit: A Letter of Credit typically used in conjunction with open account terms in which the demand for payment is made to the issuing bank in the event the debtor defaults on payment. A standby Letter of Credit is often used as a payment or performance guarantee.

Straight Bill of Lading: A straight bill of lading is a non-negotiable document in which the goods are consigned directly to a named consignee.

The buyer can obtain the goods from the carrier by showing proof of identity.

Time Draft Terms: Time draft terms allow the buyer to obtain the controlling documents from the intermediary bank, but only after he has accepted a draft for payment at a certain date in the future. This offers some advantages over open account terms: the draft is evidence of indebtedness, and the bank acts as a somewhat interested intermediary. The credit department must conduct a credit investigation as thoroughly as if shipping under open account terms. With time drafts, the intermediary bank has no obligation to pass funds to the seller until they have been received from the buyer, at times months after receipt of goods. From Credit Today newsletter

Transferable Letter of Credit: A transferable L/C is a credit which gives the beneficiary the right to make the credit available in whole or in part to one or more third parties.

Translation Exposure: The risk of adverse effects on a company's financial performance that results from changes in foreign exchange rates.

Transshipment. Transshipment involves the shipment of merchandise from one country to another on more than one vessel or vehicle.

Unconfirmed Letters of Credit - Unconfirmed letters of credit follow the basic form of confirmed letters of credit except that the credit risk is now entirely with the opening bank. While this is usually better than accepting the credit risk of the buyer, it does open the seller to country risk if the opening bank is in a foreign country. If an unconfirmed letter of credit will be accepted, it is important to investigate the creditworthiness of the foreign bank as well as the economic stability of the country in which it is located. From Credit Today newsletter

Uniform Customs and Practices for Documentary Credits: The UCP is a body of rules and guidelines governing international trade covered by letters of credit.

Usance L/C: A usance LIC provides for payment a specific number of days after the beneficiary presents the required conforming documents to the issuing bank.

Thanks to Credit Today's Credit and Collection Handbook