When trading globally, there is a series of documents involved with the process. In this section, we have compiled a list of the most commonly used documents in International trade including a summary description.
***NOTE: The information on this page is provided for reference purpose only.***
FORMAL QUOTE: A follow-up quotation to an inquiry. Detailed information is given to inform the potential buyer of all aspects of the transaction.
PRO-FORMA INVOICE: A quotation in an invoice format prepared by the exporter before shipping the goods informing the buyer of the goods to be sent, their value, and other key specifications. Often used by buyers to support an application for a Letter of Credit and/or obtain an import license.
COMMERCIAL INVOICE: A basic agreement and payment term from a seller to a buyer. This document contains all pertinent information related to the transaction. Customs officials use this document to determine duties and taxes on goods in the shipment.
CONSULAR INVOICE: A special country invoice. Certain countries require an invoice with a special format. This document must be purchased from the consulate of the country of importation or a freight forwarder will have this form.
CERTIFICATES OF ORIGIN: States the origin of the products being exported. This document is required by certain countries or by the terms of a letter of credit to verify the country of origin.
PACKING LIST: This itemizes the contents of each package (box, pallets, skids, etc.) This document includes weights, measurements and detailed contents of each package. It should be attached to the outside of a package and/or included inside the package. This document is used by shippers and forwarders to determine freight costs. It is also used by U.S. and/or foreign customs officials to check the contents of any specific package.
Financial | Letter of Credit:
LETTER OF CREDIT (L/C): A ‘Letter of Credit’ is also referred to as a, ‘Documentary Credit‘. A letter of credit is a commitment by a bank on behalf of the importer (foreign buyer) that payment will be made to the beneficiary (exporter), provided the terms and conditions stated in the letter of credit have been met, as evidenced by the presentation of specified documents.
CONFIRMED L/C: A letter of credit issued by an importers bank is sometimes confirmed by an exporters bank. This confirmation means that the exporters bank (the confirming bank) has added its promise to that of the foreign bank (the issuing bank) to pay the exporter.
ADVISED L/C: A letter of credit that is not confirmed, it is “advised” through an exporters bank, and thus the document is called an advised letter of credit.
IRREVOCABLE L/C: An irrevocable letter of credit is one that cannot be amended or canceled without the agreement of all parties.
REVOCABLE L/C: A revocable letter of credit can be modified or canceled without the beneficiary’s consent unless negotiation has already taken place.
**Note: There are many different kinds of L/Cs and L/C structures such as, Standby L/Cs, Back-to-Back L/Cs and Revolving L/Cs. You will need to confirm you are obtaining the proper L/C for your specific situation.
WHAT ARE DOCUMENTARY COLLECTIONS?
Documentary Collections, commonly known as Drafts, are often used to protect the interests of both the buyer and seller. Documentary collections are generally less expensive than Letters of Credit.
A Documentary Collection is a transaction whereby the exporter entrusts the collection of the payment to its bank (remitting bank), which sends the documents its buyer needs to the importer’s bank (collecting bank), with instructions to release the documents to the buyer for payment.
Types of Drafts (Documentary Collections)
SIGHT DRAFT | Documents against Payment (DP)
When paid immediately, banks refer to the draft as a Sight Draft, Documents Against Payment, or simply D/P. The importers bank notifies the buyer when it has received these documents. As soon as the draft has been paid, the importers bank turns over the bill of lading, thereby enabling the buyer to obtain the shipment.
TIME DRAFT | Documents against Acceptance (DA)
If the buyer and seller agree to a delay in payment, the transaction becomes a Time Draft, Documents Against Acceptance, or simply D/A. A document against acceptance collection, also known as a time draft, is used when the exporter extends credit to the buyer such as “90 days after sight” or “30 days after bill of lading date.”
Date Drafts differ slightly from a time draft in that it specifies a date on which payment is due, rather than a time period after acceptance of the draft.
When either a sight draft or a time draft is used, a buyer can delay payment by delaying acceptance of the draft.
A date draft can prevent this delay in payment, though the document still must be accepted.
***NOTE: The ICC Uniform Rules for Collections are a practical set of Rules to aid bankers, buyers, and sellers in the collections process. The International Chamber of Commerce has published guidelines, Publication URC 522, to promote uniform handling and to prevent misunderstandings when processing documentary collections.
SHIPPING ORDER: A copy of the shippers instruction issued by the shipping company to the shipper regarding the goods to be transported.
BILL OF LADING: This is a contract for carriage between a shipper and a carrier. It also serves as proof of title and receipt for the goods.
The bill of lading can be either a straight bill of lading (nonnegotiable) or a negotiable (sometimes called a shipper’s bill of lading). For ocean shipments, the bill of lading can either be Negotiable or Non-Negotiable. The customer typically needs the original as proof of ownership to take possession of the goods
• Straight (Non‑Negotiable): provides for delivery of goods to the person named in the bill of lading. The bill must be marked “non‑negotiable.”
• Shipper’s Order / Bill of Lading (Negotiable): provides for delivery of goods to the person named in the bill of lading or anyone designated. The shipper’s order is used with draft or letter‑of‑credit shipments and enables the bank involved in the export transaction to take title to the goods if the buyer defaults. The bank does not release title to the goods to the buyer until payment is received. The bank does not release funds to the exporter until conditions of sale have been satisfied.
**Note: For an air shipment, the bill of lading is never negotiable and the customer can show identification and pick up the shipment.
HOUSE BILL OF LADING:
The house bill of lading (HBL) is issued by the freight forwarder to the shipper with following purposes:
1) Receipt of goods shipped
2) Document of title
3) Proof of Contract
SHIPPER’S EXPORT DECLERATION (SED): Applicable specifically for exports from the US.
A form required by the U.S. Treasury Department and completed by a shipper showing the value, weight, consignee, destination, etc., of export shipments, as well as Harmonized Schedule B identification number.
SHIPPER’S LETTER OF INSTRUCTION: Company instructions to their freight forwarder.
This is typically a multiform used to give instructions to the freight forwarder and to partially fill out the SED.
WHAT ARE INSPECTION CERTIFICATES (I/C): I/C is a document that is required by some purchasers and countries in order to attest to the specifications of the goods shipped. This is usually performed by an independent third party that will inspect the goods for conformity.
SGS OR CERTIFICATE OF WEIGHT GRADE, QUALITY AND CONDITION: SGS is an international independent inspection company which inspects the shipment before it leaves the port and verifies that the product is of the correct weight, grade, quality, and condition as stated in the bill of lading, packing list, and contract. If all is in order, they issue an SGS certificate which states that the product met certain standards when it was shipped.
LOADING/STOWAGE SUPERVISION CERTIFICATE: A loading /stowage supervision certificate is offered by SGS or similar inspection agency and covers the following elements of loading:
• A thorough check of the overall appearance of the cargo and any packaging.
• Verification that all product is being loaded against the contract details.
• Ensuring that proper handling procedures are followed during loading.
• Ensuring that the transport medium is clean and sanitary.
• Ensuring that the shipment is adequately stowed and secured, and that it is protected from the elements.
The loading/stowage certificate is an important document that certifies to the buyer,the product was received in good condition when it left the mill or warehouse, but that it was handled properly prior to shipping. It is also important from the seller’s perspective that a loading/stowage certificate be obtained as it is additional proof in case of mishap in transit that all due care was taken to ensure successful delivery to the buyer.
CERTIFICATE OF RADIATION: A certificate of radiation states that the shipment is within internationally acceptable radiation levels.
***NOTE: Additional certificates are needed for different purposes. Check with your importer, freight forwarder for further information.