Glossary of Commercial Terms

Agent

See mercantile agents.

Arbitration

The settlement of disputes between parties to a contract by a person or persons chosen by the parties themselves or appointed by a court of arbitration. There are many courts of arbitration and arbitration associations; one of the best-known courts of arbitration is that of the International Chamber of Commerce in Paris. Attempts to submit a dispute to arbitration often fail because the parties cannot agree on a particular form of arbitration, place of arbitration, etc. It is therefore advisable to include an arbitration clause in the contract. The arbitration clause of the International Chamber of Commerce reads as follows: "All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules."

 

bank draft (or: banker's draft)

A cheque drawn by one bank on another. A person who has to effect payment at a distant place (at home or abroad) may purchase from his bank a bank draft drawn on a bank at the creditor's place of residence and send it to the creditor, who will present it to the drawee bank for payment.

 

Bankruptcy

An insolvent debtor, or his creditors, may apply to the proper court for the opening of bankruptcy proceedings. If the court finds sufficient proof of insolvency, the debtor is adjudged a bankrupt. The bankrupt's assets are placed under the control of the official receiver, a Department of Trade official, pending the appointment of a trustee in bankruptcy by the creditors. The trustee causes the bankrupt's property to be sold and distributes the proceeds of the sale among the creditors The secured creditors (those holding a mortgage or lien) can realize their security; the unsecured creditors receive their share after the preferential debts (court costs, wages, taxes, etc.) have been paid. After the bankrupt's property has been distributed, the court gives him a discharge from his unpaid debts, provided he has conducted himself honestly.

 

bank transfer (or: banker's transfer)

A transfer of money from one bank account to another. In the Anglo-Saxon countries, bank transfers are used chiefly in foreign trade. A debtor in country A asks his bank to arrange for the payment of a certain sum of money ( in foreign currency) to his creditor in country B. The bank in country A debits its customer's account with the equivalent in domestic currency ( plus bank charges) and instructs its branch or correspondent in country В (by mail or cable) to pay the amount, to the debit of its account, to the person in question. A transfer made by mail is called mail transfer (M.T.), a transfer by telegraph or cable is called telegraphic transfer (T.T.) or cable transfer (С.Т.). T.T.'s provide the quickest method of transferring funds from one country to another.

 

bill of exchange (B/E)

Legally, a bill of exchange is defined as "an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum of money to, or to the order of, a specified person, or to bearer." This definition covers both cheque and draft, but in practice the word bill of exchange or bill is applied to drafts only.

There are inland (or: domestic) bills and foreign bills. Inland bills are drawn and payable within the British Isles; all other bills are foreign bills. Foreign bills include the word Exchange and are usually issued in a set. The two or three bills making up the set are identical in all respects, except that each refers to the other. Issuing bills in a set is a precaution against loss in transit, as the parts of the set can be sent by different mails. When any of the bills forming the set has been paid, the others become void.

Bills of exchange have three parties: the drawer (the person who makes out the bill), the drawee (the person who is directed to pay) and the payee (the person who is to get the money). The payee may be the drawer himself or a third person. With regard to maturity, we distinguish between sight bills (sight drafts) and time bills (time drafts). Sight bills are payable at sight, time bills are payable on a fixed future date, or a certain time after date or sight.

A bill is of no practical value unless the drawee accepts it by writing his name across its face. The drawee thus becomes the acceptor; his signature on the draft, and the accepted draft itself, are called acceptance. A trade acceptance is a draft accepted by a buyer of goods, a bank acceptance (or: banker's acceptance) is a draft accepted by a bank.

The holder of a bill of exchange can use it in any of the following ways: 1.keep it until it is due and present it for payment (or give it to his banker for collection); 2. sell it to a bank before maturity (see discounting of bills ); 3. pass it on in payment of a debt. Before a bill of exchange can be transferred, it has to be endorsed (see endorsement ).

Also see clean draft, documentary draft, prolongation of bills.

 

bill of lading (B/L)

A document issued when goods are entrusted to a shipping company for conveyance by sea. It gives the person to whom it is issued or transferred title (right of ownership) to the goods it represents (document of title).

Bills of lading are issued in sets, usually consisting of three originals signed by the master of the ship or another authorized person on behalf of the shipping company. In addition to the originals, copies may be prepared in any desired number. The master is instructed to deliver the goods on presentation of any of the originals. When the goods have been released on the strength of one of the originals, the other originals become void.

The set of signed bills of lading is given in exchange for a wharfinger's receipt (dock receipt) or mate's receipt. Both are temporary receipts. The wharfinger's receipt is signed by the man in charge of the wharf and certifies that the goods have been received for subsequent loading; the mate's receipt is signed by the ship's chief officer and certifies that the goods are on board the vessel. Before these receipts are issued, the outward condition of the packages is examined. If the packages are in good condition, a clean receipt is given for them, if there is any defect in the condition of the packages, a note to that effect is made on the receipt, which is then known as a foul (or: dirty) receipt. When a clean receipt is presented, the shipping company will issue a clean bill of lading. A note on the receipt is also put on the bill of lading; thus a bill issued on the basis of a foul receipt is also foul.

A bill of lading stating that the goods have been loaded on board the carrying vessel is known as a shipped or on-board bill of lading. A received-for-shipment (or: received) bill of lading, on the other hand, merely states that the goods have been received for subsequent loading. It does not provide evidence of the actual shipment and is therefore less valuable than a shipped bill of lading. (After the goods have been loaded, a received bill may be converted into an on-board bill by means of a notation dated and signed by the carrier or his agent.)

Bills of lading may be either order bills or straight bills. Most order bills of lading are issued to shipper's order, in which case they are simply consigned "to order," but there are also bills issued to the order of a named consignee or a bank. Bills of lading made out to shipper's order include a notify clause giving the name and address of the person to be notified on arrival of the shipment (usually the buyer or his agent). An order bill of lading (and title to the goods it represents) can be transferred by endorsement.A straight bill of lading is issued to a named consignee, but not to his order, and is there­fore not transferable.

Bills of lading contain the terms and conditions of the contract of carriage concluded between the shipper and the shipping company. They clearly specify the risks for which the shipping company will not accept any responsibility. Compare consignment note.

 

Carriage paid to frontier

Under these terms, the seller pays carriage to the frontier and bears the risks of the goods until they have been delivered into the custody of the first carrier.

 

Carrier

A person, firm, etc., engaged in transporting goods (or passengers) for hire. The most important carriers are railways, road hauliers, airlines and shipping companies.

Cash discount

A discountgranted to a customer for immediate payment or payment within a stated period of time (discount period).

Certificate of origin

A document showing the origin of goods, signed by a chamber of commerce or customs officer in the exporting country. Certificates of origin are required by many countries and entitle the importer to claim the benefit of preferential tariffs granted by his country to the country of the exporter.

 

C. & F. (cost and freight)

Under C. & F. terms, the seller’s and the buyer’s duties are the same as under C. I. F.terms, except that the seller does not arrange for insurance. Also see Incoterms.

Chamber of commerce

A voluntary association of merchants, manufacturers and others engaged in business, for the purpose of promoting the interests of its members and the trade of the country as a whole. Chambers of commerce, among other things, furnish information and advice to businessmen, assist in their establishing business contacts, appoint experts, certify documents, and issue certificates of origin.

In addition to the national chambers of commerce there are special chambers set up for the purpose of furthering trade between two countries, such as the German-American Chamber of Commerce. The national chambers of commerce of most countries are linked up with the International Chamber of Commerce.

Cheque

A cheque (US: check) is a bill of exchangedrawn on a bank and payable on demand. A person or firm having a current account at a bank can draw cheques up to the amount of the credit balance on his account.

The parties to a cheque are: the drawer (the person who makes out the cheque and signs it), the drawee (the bank on which it is drawn), and the payee (the person who is to get the money).

An order cheque is payable to a specified person or order and can be transferred by endorsement. A bearer cheque is payable to bearer; it can pass freely from person to person without endorsement.

An open cheque is paid in cash by the bank on which it is drawn. A crossed cheque is not paid over the counter but credited to a banking account. A person receiving a crossed cheque must hand it to his banker for collection. Cheques have to be presented for payment within a reasonable period of time. If the holder keeps the cheque too long, it becomes “stale”. Stale cheques are not paid immediately on presentation, but the drawee bank will first ask the drawer whether he still wants the cheque to be honoured. A cheque is returned by the bank unpaid if there are insufficient funds or no funds, or if the cheque is not in order.

Also see bank draft.

C.I.F. (cost, insurance, freight)

UnderC.I.F. terms, the seller’s and the buyer’s duties are as follows:

The seller must contract for the carriage of the goods to the agreed port of destination and load the goods on board the vessel at his own expense. The seller must bear the risks of the goods until they have effectively passed the ship’s rail at the port of shipment, pay the freight to the port of destination, and take out insurance, at his own cost, for the benefit of the buyer. The insurance has to cover the C.I.F. price plus 10 per cent (buyer’s anticipated profit).

The buyer must bear the risks of the goods from the time when they have effectively passed the ship’s rail and bear all costs incurred in transit, except freight and insurance, as well as unloading costs, including lighterage and wharfage, unless these costs are included in the freight. (When goods are sold C.I.F. landed, unloading costs, including lighterage and wharfage, are borne by the seller.)

Also see Incoterms.

Clean draft

A foreign bill of exchange without documents.

 

C.O.D. (cash on delivery). When goods are delivered C.O.D., the post office, railway, or forwarding agent is entrusted with the collection of the invoice amount. When the buyer has paid this amount, the goods are released to him.

Compare documents against payment.