List of Trading terms and widely used abbreviations along with a brief description on the forms of payments and bank instruments used in trade with the different types of Letters of Credit, along with an example of the mechanics of how the LC works.

ASWP – Any Safe World Port.

TBD – To Be Determined.

T/T – Telegraphic Transfer.

C/O – Certificate of Origin.

BCL – Bank Comfort Letter.
Also known as a Bank Capability Letter, or Bank Confirmation Letter, this is a letter from the Buyer's bank confirming solvency and the financial capacity of the buyer to meet the payment requirements. This letter states that the Buyer has sufficient funds to cover the cost of the order. It should however be understood that this does not imply any guarantee of payment.

BOL or B/L – Bill of Landing.
This is the receipt given by the shipping company when goods are loaded on board the vessel. This is an important document and gives title to the goods.  It is needed by the buyer to obtain the goods from the port.

DC – Draft Contract.
A draft contract is an initial contract, which is drawn up and sent from the Seller to the Buyer. The Buyer has the opportunity to make amendments and send it back to the Seller for consideration. This process continues until both parties are satisfied with the terms of the contract.

SCO – Soft Corporate Offer.
Issued by the seller or seller mandate is the preliminary stages of negotiation.

FCO – Full Corporate Offer.
Issued by the seller after the preliminary stages of negotiation are complete, such as a letter of intent having been issued by the buyer, and a soft probe having been conducted on their accounts by the Seller. A full corporate offer is a document, which outlines the conditions of the sale.

ICPO – Irrevocable Corporate Purchase Order.
This is a document drawn up by commercial Buyers, and contains the quantities and type of commodity required, and other conditions that that the buyer would like the sale to proceed under. Once submitted to the Seller, this is deemed to be binding and the corporation is obliged to complete the sale.

L/C or LOC – Letter of Credit.
A letter of credit is a document issued from the Buyer's bank to the Seller, which guarantees payment to the beneficiary of the letter of credit (the Seller), as long as the terms and conditions set out in the letter of credit are met. L/C is almost always irrevocable, can be transferable, for regular shipments a Revolving L/C is often utilized.

TLC – Transferable letter of credit.
This is the favourite instrument of the traders and middlemen to offer secure terms of payments to third parties such as their suppliers (second beneficiary in the letter of credit). When the buyer pays the letter of credit, part of the proceeds is transferred to second beneficiary.

LOI – Letter of Intent.
Letter of intent is a document issued from the Buyer to the Seller, which indicates that the Buyer would like to enter into negotiations with the Seller in the hope of purchasing commodity. The letter of intent is a formal request and is not legally binding, but it does provide a starting point for negotiations.

PB – Performance Bond.
This is a type of bank guarantee, which is issued from the Seller to the Buyer. It guarantees that the Seller will meet the terms of the contract. Normally issued in the amount of 2 % of the total amount of the contract, a performance bond can be drawn upon by the Buyer in the event that the Seller breaks the contract and fails to provide the product, which was stipulated in the contract.

POP – Proof of Product. A Proof of Product ('POP')
Is often requested by customers or agents who believe it will give them some guarantee of the existence of the product and ability of the supplier to deliver the product. In practice many POP’s are false. POP offers no proof at all, because once a POP has been drafted it is automatically out of date – the product could have been sold to another buyer and therefore no longer exists. Nevertheless, a POP is still occasionally requested as apparent proof that a seller has the product. A POP is realistically provided only when the Buyer's bank issues a Bank Confirmation Letter (BCL) to the Seller and or seller's bank via SWIFT. Then the Seller's bank can check the availability of funds in the Buyer's bank and issue a POP to the Buyer's bank within an agreed time period (e.g. 5 days). A seller will not issue a POP to buyer without a non-operative letter of credit opened. The (PB) of 2 % will render the DLS operative. The bank will then send the POP five days later.

POF – Proof of Funds.
A proof of funds for transaction.

RWA – Ready, Willing and Able.
This is a document, which is issued by the Buyer's bank. The bank confirms that their client has the sufficient funds in their possession and is ready, willing and able to engage in the contract.

SGS INSPECTION http://www.sgs.com

Is the world's leading inspection, verification, testing and Certification Company? SGS is recognized as the global benchmark for quality and integrity. The core services offered by SGS can be divided into three categories:

1. Certification Services.
   SGS certifies that products, systems or services meet the requirements of standards set by governments (e.g. GOST R), standardization bodies (e.g. ISO 9000) or by SGS customers. SGS also develops and certifies its own standards.

2. Inspection Services.
   SGS inspects and verifies the quantity, weight and quality of traded goods. Inspection typically takes place at the manufacturer/supplier's premises or at time of loading or at destination during discharge/off-loading.

3. Testing Services.
   SGS tests product quality and performance against various health, safety and regulatory standards. SGS operates state of the art laboratories on or close to customer's premises. Certification Services. SGS certifies that products, systems or services meet the requirements of standards set by governments (e.g. GHOST R), standardization bodies (e.g. ISO 9000) or by SGS customers. SGS also develops and certifies its own standards.

What is bank SOFT PROBE?
A soft probe is a confirmation method used by banks to verify funding for seller from a buyer, conducted by the seller's bank to the buyer's bank. Such a probe is not recorded in the buyer's banking information and usually nothing but the seller records confirmation or lack of confirmation. Seller sends a soft document to buyer's bank to make certain buyer has enough funds or financial facility to complete transaction between them.

SWIFT – Society for worldwide Interbank Financial Telecommunication.
A global service which is responsible for facilitating communication between banks. Most payments are made via SWIFT. More information: http://www.swift.com/about_swift/legal/swift_contracts/

Introduction to Letter of Credit
Letters of credit are a payment mechanism, particularly used in international trade. The Seller gets paid, not after the Buyer has inspected the goods and approve the, but when the Seller presents certain documents (typically a bill of lading evidencing shipment of the goods, an insurance policy for the goods, commercial invoice, etc.) to his bank. The bank does not verify that the documents presented are true, but only whether they “on their face” appear to be consistent which each other and comply with the terms of the credit. After examination the bank will pay the seller (or in LC terms the beneficiary of the letter of credit).

Letter of Credit, Standard Example:

1. Buyer and Seller sign a purchase contract that stipulates payment by letter of credit. It is good practice to agree already in the purchase contract which documents the Seller/Beneficiary has to present.

2. The Buyer/Applicant goes to his bank (so called issuing bank) opening the credit to the benefit of the Seller, in particular the Buyer tells his bank which documents the Beneficiary has to present, where and how, and the amount of the credit and details of payment (by sight, deferred sight payment, against acceptance or negotiation of drafts.)

3. The Issuing bank, which is normally located in a foreign country, advises the Beneficiary through a correspondence bank located in the country of the Beneficiary of the credit. So in step no. 3, the Issuing Bank issues the L/C and forwards it to the Advising Bank.

4. The advising Bank checks the apparent authenticity of the L/C and advises the L/C to the Beneficiary.

5. The Seller/Beneficiary checks if the L/C complies with the commercial agreements and if all terms and conditions specified in the L/C can be satisfied, then the Seller ships the goods.

6. The Beneficiary assembles the documents specified in the L/C, checks the documents for discrepancies with the L/C, draws the draft and presents the draft and the documents to the advising Bank and presents the necessary documents to his local bank which pays him after examining them.

7. The Advising bank bears the draft and the documents against terms and conditions of the L/C and forwards them to the Issuing Bank.

8. The Issuing Bank checks if the documents comply with the L/C and makes a payment immediately (if the L/C is available by sight) or on a certain date (if L/C is available by deferred payment).

Confirmed Letter of Credit
Confirmed Letters of Credit have the advantage that the payment obligation of the confirming bank is independent of the issuing bank. Buyers may obtain injunction against the issuing bank in their home country to prevent the bank from honouring the L/C. Obtaining an injunction in a foreign country is more difficult.

Standby Letter of Credit
A standby letter of credit is basically a bank guarantee. Previously U.S. banks were not allowed to issue guarantees and circumvented this limitation by issuing standby letters of credit where the beneficiary basically has to present his face to get paid. Most letters of credit, particularly in international transactions, are subject to the Uniform Customs and Practices (UCP) issued and published by the international Chamber of Commerce (ICC). The current revision UCP 600 is publication No. 600 of the ICC and takes effect as of July 1, 2007. Since the ICC lacks legislative authority, meaning it is not the arm of or authorized by any government but rather a trade association, the UCP are no laws and have to be explicitly incorporated into individual transaction. Some countries and states have enacted statutes regarding letters of credit (see e.g. Article 5 US Uniform Commercial Code). In international trade however, most parties choose to use the UCP.

LETTERS OF CREDIT VARIATION

CL/C (Confirmed letter of Credit)
A letter of credit, issued by a foreign bank, with validity confirmed by a First Class (usually US or European) bank. A seller with CL/C terms is assured of payment even if the foreign buyer or the foreign bank defaults.

DL/C (Documentary Letter of Credit)
A document issued by a bank, which guarantees the payment of a buyer's drafts for a specified period and up to a specified amount. The Documentary Letter of Credit provides a more secure means of carrying out transactions in import-export trade than by documentary bills collection (see Bill of Exchange). A letter of credit when transmitted through a bank, usually in the seller's country, becomes the means by which the seller obtains payment. The necessary documents, correctly completed, are presented to a bank by an agreed date. If the terms of the credit are met, a seller can receive payment from a bank immediately.

L/C (Irrevocable Letter of Credit)
An Irrevocable Letter of Credit cannot be amended or cancelled without the consent of the issuing bank, the confirming bank (if confirmed), bears the further payment undertaking of another bank, usually the advising bank, called the Confirming Bank here since it adds its confirmation to the letter of credit. This may also be used if the issuing bank is of unknown doubtful standing to the seller and beneficiary. The bank guarantees the payment if the credit terms and conditions are fully met by the beneficiary. The words Irrevocable Documentary Credit or Irrevocable Credit may be indicated in the L/C. It means that once the buyer's conditions in the letter have been agreed to the seller, they constitute a definite undertaking by the buyer's bank and cannot be revoked without the seller's agreement.

Revocable Letters of Credit
Are rarely used as the terms of the credit can be cancelled or amended by an overseas buyer at any time without notice to the seller.

RL/C (Revolving Letter of Credit)
It is a financial guarantee or performance bond issued by a bank on behalf of a buyer i.e. a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer himself does not pay the beneficiary. The SL/C is regulated by the ICC600 rules.

SBL/C (Stand-by Letter of Credit)
It is a financial guarantee or performance bond issued by a bank on behalf of a buyer i.e. a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer himself does not pay the beneficiary. The SL/C is regulated by the ICC600 rules.

PAYMENT
The offered payment method can greatly affect the price offered by the seller; the more secure the payment the cheaper the price. Sellers are looking for more security in payment and because of high percentage of dropouts paying by ordinary DLC. Very few sellers will offer this payment option anymore. Our minimum payment option is IRDLC revolving for one month's shipment value. For larger contracts the seller is looking for one month's shipment value held by the seller as surety against the buyer dropping out.
So what does all that mean? In the past a buyer would contract a quantity say up to 12 tonnes more than the quantity they actually required; they pay for 1 or 2 shipments and then drop out; after having obtained the benefit of a price offered for the much larger quantity. Also buyers would drop out of a contract because they had since found a seller with a cheaper price. Payment option can vary with the commodity, such as sugar, where payment may be mandatory by FFBG with some sellers.

STANDARD PAYMENT OPTIONS

Note all payments must be confirmed by Top 50 Prime World Bank.

Confirmed, irrevocable Letters of Credit give the seller the greatest protection, since sellers can rely on the commitment of two banks to make payment. The confirming bank will pay even if the issuing bank cannot or will not honour the draft for any reason whatever. In accordance with the additional risk assumed by the banks, however, confirmed, irrevocable letters of Credit are more expensive than unconfirmed Letters of Credit.

HERE ARE SEVERAL PAYMENT OPTION PREFERRED BY SELLERS

IRDLC – Payment by Irrevocable, Transferable, Auto-Revolving for one month's shipment value, Documentary letter of Credit, Confirmed by Top 50 Prime World bank, 100% at sight Port of Loading.

FFDLC - (assured for 6 month contract value) Payment by Fully Funded, Irrevocable, Transferable, Auto-Revolving for one month's shipment value, Documentary Letter of Credit, confirmed by Top 50 Prime World Bank, 100% at sight Port of Loading.
Basically with this payment there is an LC opened for 6 months value that is guaranteed by the Buyer's bank for that amount. In the fifth month, there is another 6 months LC opened for the last batch of shipments. However, the payments are still paid one month at a time, but the LC is guaranteed for 6 months value.

FFDLC - (assured for full 12 month contract value) Payment by Fully Funded, Irrevocable, Transferable, Auto-Revolving for one month's shipment value, Documentary Letter of Credit, confirmed by Top 50 Prime World Bank, 100% at sight Port of Loading. This LC is guaranteed by the Buyer's bank for the full contract value.

IRDLC + BG - Unconditional Bank Guarantee for one month's shipment value held as security for payment and then monthly payments by Irrevocable, Transferable, Auto-Revolving for one month's shipment value, Documentary Letter of Credit, confirmed by Top 50 Prime World Bank, 100% at sight Port of Loading.

IRDLC + BG (3 month) – Payment by Irrevocable, Transferable, Bank Guarantee for 3 month value to be held by the Seller as security for payment. This bank guarantee will be returned to the Buyer at the end of the contract period unencumbered. Each shipment shall be paid for via Telegraphic transfer within 24 hours of receiving the shipping documents. This Irrevocable, Transferable 3 month Bank Guarantee should be issued, confirmed and guaranteed by Top 50 Prime World Bank acceptable to the Seller.

FFSBLC – Payment by Irrevocable, Fully Funded, Revolving Stand-by Letter of Credit for the total value of the goods with one month face value. The Irrevocable revolving Stand-by letter of Credit should be issued, confirmed and guaranteed by a Top 50 Prime World Bank acceptable to the Seller.

BG or FFBG – Payment by Bank Guarantee confirmed by Top 50 Prime World Bank.
The Buyer's bank is guaranteeing the funds for the full contract value, therefore with payment by BG means the buyer has the money sitting in account, pledged- that is why it is called 'Bank Guarantee'. There are other acceptable payment methods and also variations of these payment methods above applicable to certain commodities that could be acceptable, and will be outlined in full detail in the Soft Offers.

What is a EUR 1 Certificate?
EUR 1 is the name for a form, which is used in international commodity traffic. The application of this form is based on application of various bi- and multilateral agreements within the Pan-European preference system (the European Union Association Agreement). In the free trade agreements goods are defined, which apply to cheaper rates of duty or to be completely duty-free introduced, on the condition that they were completely manufactured in a member country or in such were so far worked on that they become on an equal footing in accordance with the agreements of the origin of the products. In order to profit from the preferential rate during a customs clearance, a EUR 1 movement certificate, in short EUR 1, must be handed over to the competent Authority (usually a customs administration), in which the manufacturer certifies the origin of the goods.

The EUR 1 is recognized also as a certificate of origin in the external trade in legal sense. In place of a movement certificate also a declaration of origin on the invoice can be provided by the manufacturer or sender of the goods, if the amount of items with EU preferential origin of a single shipment does not exceed €6,000. If it concerns an approved exporter, the delimitation of 6,000 Euro does not apply. The creator of such a movement certificate or declaration of origin must be able to prove the origin characteristics of the goods with a possible check on supplier declarations.
The exporter fills in the form and then hands it over or sends it in to the competent authorities, usually customs, which stamp it and send it back to the exporter.

What is a T2L Certificate?
T2L certificate is a Single Administrative Document that is used throughout the European Community and EFTA countries for the control of imports, exports and goods in transit. Customs authorities in individual member states issue this certificate.

What does GMO mean?
If you have shopped in a natural foods store in recent months, you have no doubt seen products bearing the label “GMO-free” or “contains only non-GMO ingredients”. The acronym GMO stands for Genetically Modified Organisms, which refers to any food product that has been altered at the gene level. Genetically modified foods are also frequently described as “genetically engineered”, “genetically altered” or “genetically manipulated”.

PLEASE NOTE:
It is always best to ask for a BCL (Bank Comfort Letter) to confirm buyer's ability to make the necessary payments, provided along with the LOI or ICPO. Whilst permission for a Soft Probe, which may be offered in the LOI, may sound nice, but it’s not recognition of a commitment to the contract in hand. A BCL should list a full description of the merchandise, the quantity, the total contract value and monthly revolving amount etc. expressed in US Dollars. Also as a Top 50 Prime World Bank this is virtually a guarantee of such payment as confirms payment outlined. BCL with bank disclaiming any responsibility is totally unacceptable. If a buyer will not provide a BCL it is an indication that he cannot finance the deal and or Top 50 World Bank does not confirm the deal as required.