IIBF Trade Finance key terms

The ICC's Uniform Customs and Practice for Documentary Credits, the rulebook incorporated into most commercial letters of credit. It governs issuing, advising, examining and honouring credits, and sets the five-banking-day standard for examining documents.

A document set that meets the credit terms, the UCP 600 rules and international standard banking practice. Only a complying presentation entitles the beneficiary to honour or reimbursement from the issuing bank.

Any difference between presented documents and the credit terms, or a failure to meet UCP 600 requirements. Banks may refuse on a single discrepancy and must state each one in the refusal notice.

The single message a bank must send within five banking days of presentation when it refuses documents. It must list every discrepancy and state whether documents are held at the presenter's disposal or being returned.

A credit to which a second bank, usually in the beneficiary's country, adds its own independent undertaking to honour or reimburse. The beneficiary then holds two payment promises, reducing issuing-bank and country risk.

A credit that cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. Under UCP 600 every credit is irrevocable even if the text does not say so.

The bank named in the credit as the place where documents may be presented or the credit is available. It may act by negotiation, acceptance or payment, depending on how availability is worded.

Under UCP 600, the purchase by a nominated bank of drafts or documents under a complying presentation, advancing funds to the beneficiary before the issuing bank reimburses it. Negotiation is not a mere examination of documents.

A credit expressly marked transferable that lets the first beneficiary pass part or all of its rights to one or more second beneficiaries. Transfer is arranged by the transferring bank and cannot change the credit's core terms.

Two separate credits arranged so a middleman uses the credit received from the buyer as security to open a second credit to its supplier. The two credits are legally independent, so a discrepancy in one does not automatically affect the other.

A bank undertaking, often governed by ISP98 or UCP 600, to pay a beneficiary on presentation of specified documents evidencing default or another stated event. It functions as a guarantee but is documentary in operation.

An independent undertaking to pay a stated sum on first written demand, with or without supporting statements. Payment depends on documents alone, not on proving the underlying contract was breached.

The ICC Uniform Rules for Demand Guarantees, a rulebook for independent guarantees and counter-guarantees. It sets rules on presentation, examination, expiry, extensions and the treatment of demands, and applies when incorporated into the guarantee text.

An undertaking given by one bank to another, usually instructing the second bank to issue a guarantee to the beneficiary. The instructing bank promises to reimburse the issuing bank for payments made under the guarantee.

A guarantee payable without the beneficiary proving default and without the guarantor raising defences from the underlying contract. It contrasts with a conditional or accessory guarantee tied to establishing breach.

A bank undertaking that repays a buyer's advance payment if the supplier fails to deliver or perform as agreed. It protects the buyer's prepayment and usually reduces as shipments or milestones are completed.

An undertaking securing a buyer against a supplier's failure to perform a contract, such as late delivery or poor quality. It is typically a percentage of contract value and can be called only within its stated validity.

The ICC Uniform Rules for Collections, governing documentary and clean collections handled through banks. It sets out the roles of remitting, collecting and presenting banks and rules on presentation, payment and protest.

A collection instruction under which the presenting bank releases shipping documents to the importer only after payment of the draft or invoice. It gives the exporter control of goods until cash is received.

A collection arrangement where documents are released once the importer accepts a time draft, promising to pay later. The exporter thereby extends credit and bears the importer's acceptance and payment risk.

A written unconditional order from one party to another to pay a stated sum at a fixed or determinable future date. In trade it is often drawn on the importer or a bank and may be discounted or accepted.

A transport document that acts as a receipt for goods, evidence of the carriage contract and a document of title. Its consignee and endorsement determine who can claim the goods at destination.

A bill of lading noting that goods were loaded on board in apparent good order, with no clause recording damaged packaging or short shipment. Such wording is often required by letters of credit.

ICC-defined trade terms such as FOB, CIF and DAP that allocate costs, risk and delivery obligations between buyer and seller. The named version and place must be stated because rights and duties change between editions.

A trading arrangement where goods are shipped and invoiced before payment falls due, with no bank undertaking. The exporter bears the buyer's credit and country risk, often mitigated by credit insurance or factoring.

The sale of short-term receivables to a factor, usually with notification to the debtor, in exchange for immediate cash. It often includes ledger management and collection, and may be with or without recourse.

The outright purchase, without recourse to the exporter, of medium-term receivables usually evidenced by accepted drafts or promissory notes guaranteed by a bank. It converts deferred export receivables into cash.

A financing arrangement where the financier can claim repayment from the seller if the overseas buyer or obligor fails to pay. The seller therefore retains the credit risk it thought it had passed on.

Cover purchased by an exporter or bank against non-payment by foreign buyers due to insolvency, default or political events. It supports open-account and deferred-payment trade and often underpins bank lending.

The risk that events in a buyer's or obligor's country, such as currency controls, transfer restrictions, war or sovereign default, prevent payment. It is distinct from the buyer's own commercial credit risk.

India's Foreign Exchange Management Act, 1999, which regulates foreign exchange dealings, cross-border payments and foreign assets. It replaced FERA and works alongside RBI directions and master directions on trade and remittances.

An authorised dealer bank permitted by the RBI to handle the full range of foreign exchange transactions, including import and export trade. It may open letters of credit, remit funds and report trade data to the regulator.

The Importer-Exporter Code, a ten-character number issued to an Indian entity for cross-border trade. It identifies the party in customs and banking systems and is required for most imports and exports.

The RBI's Export Data Processing and Monitoring System, which tracks export shipments and their realisation against shipping bills. Banks report export proceeds and outstanding bills there, supporting FEMA compliance monitoring.

The SWIFT message type traditionally used by an issuing bank to open a documentary credit. Its fields map to credit terms such as amount, expiry, available-with bank and required documents.

The SWIFT message used to amend a documentary credit, sent by the issuing bank to the advising bank. It states the amendment details and whether the beneficiary must accept or reject the change.

The SWIFT message used to issue a guarantee or standby letter of credit. It carries fields for the undertaking type, amount, expiry, applicable rules and the documents required for a demand.

The industry shift from SWIFT MT messages to ISO 20022 MX messages, which use structured XML data. It changes field structures and data granularity, affecting how credits, guarantees and payments are exchanged.

A change to credit or guarantee terms issued by the bank that opened it. Under UCP 600 an amendment is binding on the issuing bank once issued but not on the beneficiary until it communicates acceptance.