Collection of documentary drafts

When goods are sold on D/A or D/P terms, the seller draws a documentary draft on the buyer. D/P drafts are (usually) sight drafts, D/A drafts are time drafts payable after sight. The task of presenting the draft to the buyer at his residence and delivering the documentsto him when he pays or accepts the draft is usually entrusted to a bank. (Sometimes collections are handled by a forwarding agent or the exporter’s subsidiary abroad.) The exporter’s bank carries out the collection through its branch office or correspondent in the foreign country.

The exporter must give his bank detailed instructions with regard to the collection. The bank usually asks the exporter to complete a documentary bill lodgment form (or: letter of transmittal). The exporter has to inform the collecting bank whether the documents are to be surrendered on payment or acceptance of the draft, how the collection proceeds are to be remitted, what is to be done if the draft is dishonoured, etc. To avoid loss of documents in transit, drafts and documents are usually made out in duplicate, the originals being sent by first air mail, the duplicates by the following air mail.

 

Combined Certificate of Value and Origin

See customs invoice.

commercial traveller (US also: traveling salesman)

An employee who calls on customers and solicits orders.

 

consignment note (US: waybill)

A document used when goods are sent by rail, by road, or by air.

The consignment note has to be completed by the consignor and delivered to the carrier together with the goods. A copy (duplicate consignment note) is given to the consignor as a receipt. Unlike the bill of lading, the consigment note or waybill is not a document of title. (The American railway companies issue a special railroad bill of lading which has all the legal characteristics of an ocean bill of lading. There is no comparable document in Great Britain and Continental Europe).

 

Consignment stock

A stock of goods which a manufacturer or trader (consignor) places at the disposal of his agent (consignee). The consignee sells goods (consignment goods), which are consignor’s property, for consignor’s account.

Also see mercantile agents.

 

Consular invoice

A special invoice for customs purposes which, like the customs invoice, has to be prepared by the exporter on a special form. Unlike the customs invoice, however, the consular invoice must be legalized by a consulate of the importing country. For legalization of consular invoices (and other documents) the consulate charges a consular fee. Consular invoices are required by many Latin-American countries.

 

Credit association

Usually connected with a trade association. It compiles credit information on firms with which any of its members have had dealings and makes this information available to all members.

 

credit-inquiry agency (US: commercial agency, mercantile agency)

An agency which collects information about bisiness firms and furnishes it to its subscribers.

The subscribers pay a subscription fee; in return they recerive the rating books published by the agency and special reports on any firm about which they inquice. The large credit-inquiry agencies have branches or correspondents abroad and can also furnish reports on foreign firms. The most famous agency is Dun and Bradstreet in the United States, which operates all over the world.

 

Customs invoice

A special invoice for customs purposes which importers in many countries have to present to the customs authorities when filing a customs entry, and which serves as the basis for the assessments of import duty. It has to be prepared by the exporter on a special form which can be obtained from printers and stationers specializing in the sale of export forms. On this invoice the exporter must show, in addition to the usual invoice details and the export price, the domestic value of the goods in the exporting country, and the country of origin.

Customs invoices are required by the Commonwealth countries, the British colonies, and a number of other countries (but not Great Britain). In most of these countries the official designation of the customs invoice is Combined Certificate of Value and Origin. In the United States, a Special Customs Invoice has to be presented on all shipments valued at over $500 and subject to ad valorem duty.

Compare consular invoice.

 

D/A (documents against acceptance)

Under D/A terms, the documents relating to a shipment of goods are released to the buyer on acceptance of a documentary draft (time draft) drawn on him by the seller.

Also see collection of documentary drafts. Compare documents against bank acceptance.

 

Discount

1. A deduction from the invoice price or list price. See cash discount, quantity discount, trade discount. Compare rebate.

2. A deduction from the face amount of a bill of exchange. Also see discounting of bills.

 

Discounting of bills

Buying bills of exchange before maturity for a sum less than their face value. (The term to discount may also mean to have a bill discounted, as, for example, in the following sentence: The holder of a bill can obtain immediate cash by discounting it.)

Bills are discounted by banks and other financial institutions. The bank deducts the discount, that is, interest for the time until maturity, from the face amount of the bill and pays the balance in cash or credits it to the customer's account. A bank which has discounted a bill can re-discount it at the central bank, provided the bill is eligible for re-discounting.

 

documentary letter of credit (or: documentary credit)

A documentary letter of credit, is a promise by a bank to a seller of goods to pay a certain amount of money if the documents relating to the goods are presented on time and in strict compliance with the terms of the credit.

When the buyer and the seller have agreed on payment by documentary letter of credit, the buyer requests his bank to open (or: to issue) the credit in favour of the seller. The buyer's bank (opening or issuing bank) instructs its correspondent in the seller's country (by mail or by cable) to pay the seller the amount in question on presentation of the documents specified in the credit. Sometimes the letter of credit is addressed direct to the beneficiary by the opening bank.

The amount of the credit may be made available to the beneficiary in any of the fol­lowing ways:

1. The beneficiary is authorized to draw a sight draft on the correspondent bank, which this bank pays on presentation of the documents.

2. The beneficiary is authorized to draw a time draft on the correspondent bank, which this bank accepts on presentation of the documents. The accepted draft (bank accept­ance) is then discounted.

3. The beneficiary is authorized to draw a draft (in foreign currency) on the opening bank or the buyer, which the correspondent bank negotiates (that is, purchases) on presentation of the documents.

Documentary credits may be irrevocable and confirmed, irrevocable and unconfirmed, or revocable and unconfirmed.

An irrevocable credit cannot be revoked by the opening bank except with the bene­ficiary's consent. A revocable credit can be modified or cancelled at any time without notice to the beneficiary. When an irrevocable credit is to be confirmed, the opening bank instructs its correspondent to send the beneficiary a confirmation. Such a confirmation is a definite undertaking on the part of the correspondent to pay, accept, or negotiate the beneficiary's draft or drafts, provided the documents required are presented within the required time. In the case of irrevocable and unconfirmed credits or revocable credits (which are always unconfirmed), the opening bank merely instructs the corre­spondent bank to advise the beneficiary of the credit, such advice being without any obligation for the correspondent.

Irrevocable and confirmed credits constitute an engagement of both the opening bank and its correspondent and thus offer maximum security to the exporter. In many cases, however, irrevocable and unconfirmed credits are preferred because they are cheaper.

Documentary draft

A foreign bill of exchange with documents attached. Also see collection of documentary drafts.

 

Documents

The most important documents used in connection with export shipments are: bill of lading, insurance policy, insurance certificate, commercial invoice, customs invoice, consular invoice and certificate of origin.