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bill of exchange (BOE)

A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract. A bill of exchange is also called a draft but, while all drafts are negotiable instruments, only "to order" bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (also called Geneva Convention) a bill of exchange contains: (1) The term bill of exchange inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) An unconditional order to pay a determinate sum of money. (3) The name of the person who is to pay (drawee). (4) A statement of the time of payment. (5) A statement of the place where payment is to be made. (6) The name of the person to whom or to whose order payment is to be made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of the person who issues the bill (drawer). A bill of exchange is the most often used form of payment in local and international trade, and has a long history- as long as that of writing.

etter of credit (L/C)

A written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe. These documents almost always include a clean bill of lading or air waybill, commercial invoice, and certificate of origin. To establish a letter of credit in favor of the seller or exporter (called the beneficiary) the buyer (called the applicant or account party) either pays the specified sum (plus service charges) up front to the issuing bank, or negotiates credit. Letters of credit are formal trade instruments and are used usually where the seller is unwilling to extend credit to the buyer. In effect, a letter of credit substitutes the creditworthiness of a bank for the creditworthiness of the buyer. Thus, the international banking system acts as an intermediary between far flung exporters and importers. However, the banking system does not take on any responsibility for the quality of goods, genuineness of documents, or any other provision in the

contract of sale. Since the unambiguity of the terminology used in writing a letter of credit is of vital importance, the International Chamber Of Commerce (ICC) has suggested specific terms (called Incoterms) that are now almost universally accepted and used. Unlike a bill of exchange, a letter of credit is a nonnegotiable instrument but may be transferable with the consent of the applicant. Although letters of credit come in numerous types, the two most basic ones are (1) Revocable-credit letter of credit and (2) Irrevocable-credit letter of credit, which comes in two versions (a) Confirmed irrevocable letter of credit and (b) Not-confirmed irrevocable letter of credit.

bill of lading (B/L)

A document issued by a carrier, or its agent, to the shipper as a contract of carriage of goods. It is also a receipt for cargo accepted for transportation, and must be presented for taking delivery at the destination. Among other items of information, a bill of lading contains (1) consignor's and consignee's name, (2) names of the ports of departure and destination, (3) name of the vessel, (4) dates of departure and arrival, (5) itemized list of goods being transported with number of packages and kind of packaging, (6) marks and numbers on the packages, (7) weight and/or volume of the cargo, (8) freight rate and amount. It serves as a proof of ownership (title) of the cargo, and may be issued either in a negotiable or non-negotiable form. In negotiable form, it is commonly used in letter of credit transactions, and may be bought, sold, or traded; or used as security for borrowing money. A bill of lading is required in all claims for compensation for any damage, delay, or loss; and for the resolution of disputes regarding ownership of the cargo. The rights, responsibilities, and liabilities of the carrier and the shipper under a bill of lading (often printed on its back) are governed generally either by the older Hague rules, or by the more recent HagueVisby rules. See also lading.

Maker or writer of a bill of exchange (check, draft, letter of credit, etc.) who directs the drawee (such as a bank) to pay the stated amount to a third party (the payee). In documentary credit, the drawer is the beneficiary of a letter of credit. Also called writer.

Entity that is expected to accept and pay a bill of exchange (check, draft, letter of credit, etc.) on presentation or on a certain date (called due date or maturity date). See also payee.

payee Definition
Party to whom a bill of exchange (such as a check or draft) is made payable. Payee's name follows the words 'Pay to the order of.' Also called beneficiary. See also drawee and drawer.

nostro account
Foreign exchange account maintained by a non-local (correspondent) bank with a local bank in local currency. For the local bank it is a vostro account

vostro account
Local currency account maintained by a local bank for a foreign (correspondent) bank. For the foreign bank it is a nostro account.

Return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity, or value, of goods within a specified period. Unlike discount (which is deducted in advance of payment), rebate is given after the payment of full invoice amount. See also refund.

Definitions (3)
1. General: Process of recovering amounts owed to a firm by its customers. 2. Banking: (1) presentment of a check or draft for payment and, subsequently, receipt of its amount in cash or as a credit entry. (2) Transfer of delinquent or past-due accounts to a collection agency (or a special department set up for the purpose) for full or partial recovery of the amount. 3. Foreign trade: Process through which the global banking system acts on behalf of an exporter (or seller) to collect cash payment or a time draft from the importer (or buyer) in return for documents required for taking delivery of the ordered goods.

advance payment
Prepayment, payment made on account, or in anticipation of a contingent liability or obligation.