Classwork Series and Exercises {Commerce – SS1}: Documents Used In Foreign Trade

Commerce SS 1 

Topic- Documents Used in Foreign Trade

Contents-

1. The types of document used in international trade
2. Means of payment in International Trade

Introduction

Export and Import Documents lies at the heart of all international trade transactions. It provides exporters and importers with an accounting record; shipping and logistics companies with instructions of what to do with freight information; and banks with instructions and accounting tools for collecting payments.

For an international trade to succeed and go smoothly, there is a need for some documents to be made available and provided, these documents are as follows:

1. Indent: This is a document used in international trade; it is an order or privilege to buy goods conveyed by an importer to a potential buyer. Indent is an official order or requisition for goods; it gives details of the goods, approximate price, date of delivery etc.

 It can be open or close. Open indent is the one that have to do with an order from abroad to a merchant with freedom to purchase goods from any manufacturer he pleases while closed indent the foreign buyer will specify the manufacturer from whom the goods are to be purchased.

2. Bill of lading: A bill of lading is a document of title giving the holder a right to take possession of the goods to which it refers. A bill of lading is a contract of carriage of goods between an exporter and the shipping company.

Contents of a Bill of Lading

A bill of lading contains the following

1. The name of the ship carrying the goods.
2. Description of the goods such as the quantity, type, weight etc.
3. The shippers name.
4. The names of the consignor and consignee
5. Addresses of both consignor and consignee
6. Addresses of both consignor and consignee
7. The port of embarkation/port of loading
8. Conditions of carriage e.g. that pays the fright charges.
9. The port of disembarkation/port of unloading.
10. Location of the goods in the ship
11. The expected time of arrival.

Types of Bill of Lading

There are two main types of bill of lading, which are:

1. Clean bill of lading: A clean bill of lading is one signed by the transporter. It shows that the goods are in good order or condition or are free from irregularities.
2. Dirty or foul bill of lading: A foul bill of lading is one which indicates some deficiencies, irregularities or damage on the goods.
3. Freight Note: Freight note is the note which shows the carriage charges for a particular cargo for a specified journey.
4. Dock warrant: Dock warrant is a receipt for goods delivered and stored in the warehouse. It entitles the holder to take possession of goods.
5. Bill of sight: Bill of sight is a document that a person importing that a person importing goods who cannot fully describe them, gives to the customs authorities, allowing them to examine the goods when they arrive. Others are:
6. Dock landing Account.
7. Customs specification.
8. Insurance certificate.
9. Bill of exchange.

Other documents include:

Air Waybill
An Air Waybill AWB is a non-negotiable transport document covering transport of cargo from airport to airport. The Air Waybill must name a consignee (who can be the buyer), and it should not be required to be issued “to order” and/or “to be endorsed” as it is not a title of property of the merchandise. Since it is not negotiable, and it does not evidence title to the goods, in order to maintain some control of goods not paid for by cash in advance, sellers often consign air shipments to their sales agents, or freight forwarders’ agents in the buyer’s country.

Certificate of Origin
The Certificate of Origin certifies the country in which the goods originated or in which the preponderance of manufacturing or value was added. It also constitutes a declaration by the exporter. Virtually every country in the world considers the origin of imported goods when determining what duty will be assessed on the goods. Nevertheless the exporter´s own certification on company letterhead will suffice. In most countries, Chambers of Commerce are the key agent in the delivery of certificates of origin. However, in some countries, this privilege may also be extended to other entities such as ministries or customs authorities.

Bill of Exchange
A Bill of Exchange is an unconditional order in writing, addressed by one person to another, requiring the person to whom it is addressed to pay a certain sum of money, either immediately or at a stated future date to the bearer.

Means of payment in International Trade

Means of payment in International trade are:

1. Guaranteed Mail Transfer
2. Bank draft
3. Letter of hypothecation: This is a form of authority given to a banker, often in connection with a documentary bill, authorizing it to sell the goods that have been pledge to it if payment or acceptance of the bill is refused. Others are:
4. Travelers’ cheques: These are orders drawn on commercial bank with travelers and businessmen in other countries can use to settle their bills.
5. Mail Transfer: Mail transfer is a means of payment in which an order to pay a foreign creditor a sum of money is given.
6. Factoring: A firm can purchase the trade debts of its client and then claim payment for them. It is a means of financing export.
7. Documentary Credit
8. Telegraphic Transfer.

Test and Exercise

1. The indent in which the foreign buyer will specify the manufacturer in which goods are to be purchased is (a) open (b) closed (c) general (d) special.
2. ——— is a document of title giving the holder a right to take possession of the goods to which it refers (a) bill of lading (b) indent (c) shipping note (d) freight note.
3. All of the following are means of payment except (a) bank draft (b) mail transfer (c) documentary credit (d) all of the above.
4. Bill of lading is of ———types (a) 3 (b) 5 (c) 2 (d) 6.
5. The type of bill of lading that is signed by the transporter (a) clean bill of lading (b) dirty or foul bill of lading (c) unclean bill of lading (d) none of the above.