Terms and definitions in international trade
Bank Comfort Letter – is a letter provided by the buyer’s bank to confirm that the buyer has sufficient funds to carry out the transaction.
Bill of Lading is the official document prepared by the carrier duly accepting the goods for shipment containing information like item, quantity, value, vessel details, date, port, consigner, consignee etc. Bill of lading is a contract to carry the goods to the said destination based on which seller can claim consideration and buyer can take delivery of the goods.
Cost and Freight – an INCOTERM trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier. Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the goods during transit.
Cost, Insurance and Freight – an INCOTERM trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.
A bank which agrees to honour a letter of credit (L/C) issued by another bank.
DC – Draft Contract
This is an initial contract which is drawn up and sent form the seller to the buyer. The buyer has the opportunity to make amendments and send it back to the seller for consideration. This process continues until both parties are satisfied with the terms of the contract.
Free On Board – an INCOTERM trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship’s rail. When used in trade terms, the word “free” means the seller has an obligation to deliver goods to a named place for transfer to a carrier
Formal (Final) Contract
When the negotiation stages of the draft contract are complete and both parties are satisfied, then a formal contract is drawn up and signed by both parties.
ICPO – Irrevocable Corporate Purchasing Order
This is a document drawn up by commercial buyers and contains the volume of cement required, the type of cement required and other conditions that the buyer would like the sale to proceed under. Once submitted to the seller, this is deemed to be binding and the buyer is obliged to complete the sale.
ICPO with Banking details
This is an ICPO which includes the buyer’s bank details in order for the seller to conduct a soft probe on their accounts in order for the seller to satisfy himself that there are sufficient funds in place to cover the cost of the deal.
Irrevocable Letter of Credit
This is a document issued from a buyer’s bank to the seller which guarantees payment upon the presentation of stipulated documentation. As an irrevocable document, it cannot be cancelled, and the buyer’s bank is legally obliged to make payment at such time as the beneficiary fulfils the terms set out in the letter of credit.
Irrevocable Confirmed Letter of Credit
This is a document which is confirmed by another bank, normally one in the beneficiary’s jurisdiction. A confirming bank is one which undertakes to make payment on the letter of credit on behalf of the issuing bank at such time as the beneficiary meets the terms and conditions outlined in the letter of credit.
Buyer’s bank which issues bank guarantees and letters of credit on behalf of their client.
L/C or LOC
Letter of Credit – a written undertaking by a bank (issuing bank) given to the seller (beneficiary) at the request, and on the instructions of the buyer (applicant) to pay at sight or at a determinable future date up to a stated sum of money, within a prescribed time limit and against stipulated documents.
A Letter Of Intent is a document outlining an agreement between two or more parties before the agreement is finalized.
Metric Tonnes – units used to measure the weight or the volume.
A confirmation method used by banks to verify funding for a seller from a buyer, conducted by the seller’s bank to the buyer’s bank. Such a probe is not recorded in the buyer’s banking information, and usually nothing but confirmation or lack of confirmation is recorded by the seller.
Transferable Letter of Credit
This is a letter of credit which the beneficiary can use to assign some of the funds from the letter of credit to another party. This is common in the case of sellers paying their ultimate suppliers.
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