Convention on Contracts for the International Sale of Goods
A United Nations' treaty that acts as international sales law.
Commercial Risk
The probability of not being paid by a creditor, either because the creditor does not have the funds, or because it refuses to recognize the debt.
Country Risk
The probability of not being paid by a creditor, because the importer's country does not have the foreign currency or does not allow the creditor to pay - political embargo.
Exposure
The impact of an unpaid receivable for an exporter and its effect on the exporter's financial well-being.
Cash in Advance
A method of payment in which an importer has to pay the exporter before the exporter ships the goods.
Open Account
A method of payment in which the exporter sends an invoice to the importer along with the goods and expects the importer to pay within a reasonable amount of time.
Credit Insurance
An insurance policy that the exporter can purchase to protect itself against the risk of non-payment by the importer.
Factoring
A means of financing international receivable accounts, by which a firm asks a factoring company to advance funds on the receivable.
Letter of Credit
A method of payment in which a bank promises to pay the beneficiary (the exporter) on behalf of the applicant (the importer), as long as the exporter has provided the documents requested in the letter of credit.
Issuing Bank
The bank that opens the letter of credit on behalf of the importer and pays the exporter if the exporter provides the documents requested in the letter of credit.
Beneficiary
The party that will be paid by the letter of credit, the exporter.
Applicant
The firm whose payment is supported by the letter of credit, the importer.
SWIFT - Society for Worldwide Interbank Financial Telecommunications
An interbank electronic network for the secure transfer of funds and documents.
Advising Bank
A bank that reviews the letter of credit on behalf of the beneficiary.
Confirmed letter of Credit
When a letter of credit is confirmed, should the issuing bank not pay, the confirming bank does.
Confirming Bank
The bank that confirms a letter of credit. Should the issuing bank not pay, the confirming bank does.
Correspondent Bank
A foreign bank with which a domestic bank has a preferred business relationship.
Irrevocable letter of credit
A letter of credit that cannot be altered without the consent of the issuing bank and the beneficiary.
Discrepancy
A difference between the documents required by the letter of credit and the documents provided or obtained by the exporter.
Amendment
A change to a letter of credit to which all parties have agreed, from the applicant to the beneficiary.
Draft
A promissory note in which the importer formally recognizes its debt to the exporter.
Stand-by-letter of credit
A letter of credit that is valid for multiple shipments and allows for bills of lading issued on multiple dates.
Transferable letter of credit
A letter of credit that the beneficiary can use as a means to insure its creditors that they will be paid.
Back-to-back letter of credit
A letter of credit issued using another letter of credit as a payment guarantee.
Documentary Collection
A method of payment in which an exporter enlists the help of a bank in the importer's country to collect payment from the importer.
Remitting Bank
In a documentary collection, the remitting bank collects the documents from the exporter and sends them to the presenting bank. It has no other involvement.
Presenting Bank
In a documentary collection, the presenting bank interacts with the importer and withholds the documents until payment is received or a draft signed.
Bill of Exchange
Another term for a draft. A promissory note with which the importer formally recognizes its debt to the exporter.
Sight Draft
A draft in which the importer promises to pay the exporter immediately, "at sight.
Time Draft
A draft in which the importer promises to pay the exporter 30, 60, or 90 days after the importer has signed the draft.
Date Draft
A draft in which the importer promises to pay the exporter 30, 60, or 90 days after the shipment date of the goods, regardless of the date on which importer has signed the draft.
Instruction letter
In a documentary collection, a document prepared by the exporter that instructs the presenting bank on the steps to take before releasing the documents to the importer.
Trade Acceptance
In a documentary collection, trade acceptance takes place hen the importer signs the draft.
Banker's Acceptance
In a documentary collection, banker's acceptance takes place when the bank signs the draft on behalf of the importer.
Aval
In a documentary collection, the promise by the presenting bank that the importer will honor the draft and that, should the importer default, the bank will make the payment.
Forfaiting
A means of financing an international sale in which an exporter collects a series of drafts from the importer, and then sells them.
Purchasing Cards
Credit cards used by companies to make small purchases, and that can be used in international transactions.
TradeCard
A proprietary process that combines payment and documents and facilitates international transactions.
Bank Guarantee
A contract from a bank in which the bank guarantees that the exporter will perform as required by the importer.
Guarantor
The bank that provides the bank guarantee.