| Account Party | In a letter of credit transaction, the buyer (importer) who contracts with a bank to issue a letter of credit. Also known as an applicant or customer. |
| Accounts Receivable Finance | See "Assignment of Accounts Receivable" |
| Advance Payment Guarantee | In some instances, an importer may choose to pay exporter in advance of manufacture or shipping. The importer can decrease its risk by requesting the exporter to provide a bank guarantee. |
| Advising Bank | In a letter of credit transaction, a bank located in seller's (exporter's) jurisdiction. This bank acts as the agent of the foreign jurisdiction issuing bank, communicates the terms of the L/C, and forwards seller's complying documents to the issuing bank. The advising bank has no obligation to pay seller. |
| Assignment of (Accounts) Receivable | The sale of accounts receivable to immediately raise funds. |
| Assignment of Bills of Exchange | The sale (assignment) of dated drafts or time-drafts to immediately obtain the amount of the draft, minus a discount. |
| Assignment of Letter of Credit | The sale (assignment) of dated or time-draft letters of credit to immediately obtain the amount of the letter of credit, minus a discount. |
| Back to Back Letter of Credit | A letter of credit that allows the beneficiary to assign its rights in one letter of credit to an issuer of a second letter of credit. Both letters of credit must require identical documents. |
| Beneficiary | In a letter of credit transaction, the seller (exporter) of the goods who benefits by being paid. |
| Bid Bond | A type of guarantee that insures that a bidder will not submit an unrealistic bid or, after winning the bid, failing to enter into an agreement. Also known as a tender guarantee. |
| Bill of Exchange | A document (negotiable instrument) that, under the terms of a letter of credit, allows seller to obtain payment from seller's or buyer's bank. |
| Bill of Lading | A document issued by a carrier to a shipper indicating receipt of goods from the shipper. A bill of lading can also represent ownership of the goods that are being transported. See "Negotiable Bill of Lading" |
| Collecting Bank | In a letter of credit transaction, a bank that acts on behalf of the buyer of goods and agrees to collect seller's documents and forward them to the paying bank (issuing or confirming bank). |
| Commercial Risk | The risk that either party to a trade transaction will fail to fulfill its obligations. |
| Confirmed Letter of Credit | A letter of credit that is backed by seller's bank's (the confirming bank) promise to pay seller the contracted for amount upon delivery of the documents required by the L/C. |
| Confirming Bank | In a letter of credit transaction, a bank located in the jurisdiction of the seller (exporter) of the goods. In terms of payment of the L/C, this bank steps in the shoes of the bank that issued the L/C and promises to pay the seller upon its compliance with the L/C. |
| Credit Application Agreement | In a letter of credit transaction, the contract between the party that is opening the L/C (the importer) and the bank. This contract governs importer's repayment of the bank. |
| Credit Insurance | An insurance product that covers buyer insolvency, protracted default, and/or political risks. |
| Dated Draft | A draft (bill of exchange) that is payable on a stated future date. |
| Documents | In a letter of credit transaction, the term "documents" is usually used to refer to the following general categories of documents: (1) Payment documents (bill of exchange; promissory note); (2) Commercial documents (invoice; various certificates); (3) Insurance documents; and (4) Transport documents (bill of lading; multimodal transport document, etc.). |
| Documentary Letter of Credit | A bank's promise, in the form of a letter, to pay exporter as long as exporter complies with the terms of the letter of credit. Exporter usually does this by providing the bill of lading and any other specified documents. |
| Draft | See "Bill of Exchange" |
| Equipment Finance | The purchase of equipment through an equipment lease or a loan that is secured (collateralized) by the very equipment that is being purchased. A form of asset-based finance. |
| Exchange Risk | The risk that fluctuations in currency will affect the value of a transaction. |
| Export Credit Agency | Government supported agencies that facilitate international trade and export transactions by providing financing, insurance and guarantees. |
| Export Finance | Finance techniques that facilitate the manufacture and sale of goods to foreign buyers. |
| Factoring | A long-term financing arrangement where a company sells all or some of its accounts receivable to a financial intermediary known as a factor. The factor may also take responsibility for collecting on and managing the receivables. |
| Foreign Exchange Risk Insurance | Reduces or hedges the risk that fluctuations in currency will affect the value of a transaction. |
| Forfait | The sale of short or medium term accounts receivable to a financial intermediary on a non-recourse (sometimes limited recourse) basis. |
| Green Clause Letter of Credit | A letter of credit that contains a prepayment clause that allows the beneficiary (seller/exporter) to draw on the L/C with just an invoice and a draft. The paying bank collateralizes this prepayment by taking a property interest in the underlying goods. Also known as a Secured Red Clause. |
| Independent Guarantee / Guarantee | A third party guarantee that a party will perform under another, separate contract. |
| Irrevocable Letter of Credit | A letter of credit that cannot by cancelled or revoked by the issuing bank. |
| Letter of Credit | See "Documentary Letter of Credit" |
| Letter of Indemnity | See "Advance Payment Guarantee" |
| Negotiable Bill of Lading | Negotiable bills of lading act as (1) a contract with the carrier; (2) a receipt for the transported goods; and (3) an indication of ownership of the goods (document of title). If indorsed in blank, anyone who possesses the bill of lading can demand delivery of the goods. Also known as an "Order". |
| Negotiating Bank | In a letter of credit transaction, a nominated bank that has paid against seller's documents. |
| Nominated Bank | In a letter of credit transaction, any bank that is authorized by the issuing bank to pay against the documents required by the L/C. |
| Non-Negotiable Bill of Lading | A bill of lading that serves as (1) a receipt for delivery of goods to a carrier; and (2) a contract with carrier. A non-negotiable bill of lading is not a document of title and does not give a consignee the right to demand delivery of the goods. Also known as "straight bills of lading," "freight receipts," "air waybills," and "sea waybills." |
| Notifying Bank | See "Advising Bank" |
| Open Account | An exporter may ship goods, prior to being paid, without any third-party guarantee of payment. This is known as "selling on open account" and is a way for exporter to finance the importer's purchase of the goods. |
| Performance Bond | A third party guarantee that exporter will perform as agreed. |
| Political Risk | The risk that changes in government policy, wars, embargoes, etc. will prevent the conclusion or effect the value of a transaction. |
| Post-Export Finance | Generally medium or long-term finance that is used to facilitate the purchase of equipment or other fixed assets. The sale or assignment of accounts receivable that are generated through export sales may also be considered post-export finance. |
| Pre-Export Finance | Financing used to cover pre-shipment costs such as the purchase of raw materials, manufacturing costs, warehousing, and inland shipping. |
| Purchase Order Finance | An exporter may be able to obtain financing based on its purchase orders. This is especially the case when the buyer is a large, well-known, financially stable company. It is also possible to raise financing by combining purchase orders with insurance or guarantees. |
| Red Clause Letter of Credit | A letter of credit that contains a prepayment clause that allows the beneficiary (seller/exporter) to draw on the L/C with just an invoice and a draft. Beneficiary must follow up with all of the documents required by the L/C. |
| Repurchase Agreement | A type of Warehouse Receipt Finance. Pre-export, a bank will directly purchase the commodities and then re-sell them at a price that reflects the cost of funds. |
| Revocable Letter of Credit | A letter of credit that can be cancelled or revoked by the issuing bank without the beneficiary's (seller/exporter) consent. |
| Revolving Letter of Credit | A letter of credit that allows the beneficiary to draw on the L/C up to a certain amount. Beneficiary may not have to present documents. |
| Seller Non-Compliance Insurance | A type of credit insurance that covers advance-payment risk. |
| Sight Draft | A draft (bill of exchange) that is payable on demand. |
| Standby Letter of Credit | A letter of credit that actually functions as a guarantee or a performance bond. The letter of credit is issued by the buyer's (exporter) bank in favor of the seller (importer) and guarantees that buyer will perform or deliver as agreed. |
| Straight Bill of Lading | See "Non-Negotiable Bill of Lading" |
| Structured Finance | A financing technique where numerous relatively small obligations are pooled together and interests in the pool are sold to investors. Those investors receive payment based solely on the cash flow that the pool of obligations create. In trade finance, structured finance is used to pool export receivables, warehouse receipts, etc. |
| Suretyship | A third party's guarantee (the surety) to pay if a party fails to perform according to an agreement. A suretyship differs from a guarantee in that the surety's obligations are not independent of the agreement that is being guaranteed. |
| Third Party Guarantee | See "Independent Guarantee" |
| Time Draft | A draft (bill of exchange) that is payable at some future time (e.g. "30 days after sight"). |
| Trade Finance | Financial techniques used to fund the manufacture, sale and delivery of goods to foreign buyers. Trade finance also includes techniques that are used to monetize accounts receivables that result from international commercial transactions. |
| Transferable Letter of Credit | A letter of credit that allows the original beneficiary to transfer the letter of credit to a third party. |
| Transportation Insurance | Reduces transportation risk by providing a contracted for amount of coverage. |
| Transportation Risk | The risk that goods become lost, damaged, destroyed or stolen during transportation. |
| UCP 500 | Short for the Uniform Rules and Practices for Documentary Credits, version 500. |
| Unconfirmed Letter of Credit | A letter of credit that is not backed by seller's (exporter) local jurisdiction bank's promise to pay buyer's (importer) L/C. |
| Uniform Commercial Code (UCC) | A body of U.S. law that applies to commercial transactions that take place within the 50 United States. Most U.S. trade finance transactions fall under the UCC. |
| Warehouse Receipt Finance | Financing that is collateralized (secured) by commodities that are located in a storage facility (warehouse; tank). The bank may actually purchase and re-sell the goods or take possession of the storage facility's receipt of possession of the goods (warehouse receipts. See "Repurchase Agreement" |
| Working Capital Finance | Financing techniques that allow an exporter to use its working capital (accounts receivable; inventory) to raise financing. A commercial bank or commercial finance company will advance funds based on a company's accounts receivable or inventory. These techniques can be used before or after export. |
