Sherie Griffiths

May 19, 2010

Glossary Of Terms – The ‘I’s:

Filed under: A-Z of International Trade Terms, Business, International Trade, International Trade Financial Solutions — Tags: , , , , , , , , , , , , , , , , , , , , , — sheriegriffiths.com @ 9:57 am

From Ray Stannnard, International Trade Financial Solutions

What?  We’re back to a single letter again this month!  It’s quite surprising how many international-related issues start with this letter.  I promise that next month we will start motoring – currently, I cannot think of any terms starting with the letter J – and K is also a challenge.  OK, then, the I’s.

ICC
In International terms, ICC stands for the International Chamber of Commerce.  Think of it as a Chamber of Commerce that covers much of the world.  Amongst their many responsibilities they formulate, interpret and put into place standards and procedures that are recognised globally. Without this, International Trade would rapidly deteriorate into local practices and chaos.  Some cynics will say this already happens, but things like the Letter or Credit rules are drawn up by the ICC. They are also responsible for arbitration, and the general opening up of global markets.  Visit their main website for more info.

Import Licence
These may still be required by some countries for some or all goods, including certain imports into the UK. Whilst compliance is the responsibility of the importer, as an exporter, it is a good idea to make sure they are doing so; after all, you want payment for your goods!

Import Paperwork
If goods are already in free circulation within the EU [see 'Free Circulation, Issue 17], paperwork is usually minimal.  However, if imports into the UK exceed £600,000 and/or your exports exceed £250,000, you need Intrastat declarations [see below].  Goods from outside the EU will require more documentation, possibly including an import licence [see above].
(All previous issues of the newsletter can be found as PDF files on my website.  Click on Articles/Newsletters on the left hand side.)

Incoterms
I have already covered these in Issue 12, at the start of the 1st actual Incoterm.
Inspection Certificate
This is what it says, but it is vital to ensure that the correct one is provided, if called upon.  Anyone can issue one, but it is more usual for an independent, random sample to be inspected by an accredited inspection company, such as SGS. Some countries may require these as a precondition of import into the Country. As ever, know the rules for the areas of the world in which you deal.
Insurance policy/certificate
If called for, it is usual for goods to be insured for 110% of their value, and will include details of quantity and route plus, if necessary, time limits and any transshipments. Insurance certificates called for under transferable Letters of Credit can cause an issue in as much as they will show the mark up amount that the middle man is taking to the other parties.  More later…
Intrastat
This is a system for collecting statistics on the physical trade in goods between EU member states.  If you import or export above the thresholds [currently £600k and £250k respectively] you must complete monthly returns on line, or face heavy fines and penalties.  There is a lot more info on the revenue’s website.  Just search for Intrastat.
Inward Processing Relief
I do not intend to include all of the many HMRC reliefs in this glossary, but this one is of note for anyone who imports goods for re-export, post processing. If you apply for IPR, you only pay VAT if you subsequently decide to sell them in the UK [or fail to met the conditions attached to IPR, of course].
ISP98
I toyed with whether or not to include, but it is still seen sometimes, so I voted it in.  ISP98 is a set of rules that govern Standby Letters of Credit [SLC].  I will cover both Letters of Credit [L/C's] and Stand bys in the relevant sections later on, but, in brief, all L/C’s and SLC’s must state under which set of internationally recognised rules they operate.  For L/C’s it should read UCP600, but for SLC’s, ISP98 is usually preferable to UCP600. Without going into too much detail, if you need further advice on ISP98 [or UCP600], please contact me.
Right, that’s the end of I. As I said at the start, J & K are presently blank, so here’s a challenge for everyone – send me an e-mail if you can think of any terms!

May 18, 2010

Trade International Digest Interview

Filed under: Business, International Trade, International Trade Financial Solutions — Tags: , , , , , , , , — sheriegriffiths.com @ 8:18 am

From Ray Stannard, International Trade Financial Solutions

My interview in TID – ‘How I Got Here’ – was published, as promised, in their April edition. It is due to be released very shortly on their main website, under the ‘Interviews’ section on the left hand side.  I have already had some very positive feedback, so it is a useful additional outlet to promote what I do.  Go and have a look – I hope to post a link from my website
shortly – and, as I said last month, spread the word to any associates who would be interested.  Please also give me any feedback on your thoughts, etc.

Tomorrow: ‘Glossary Of Terms – The I’s’.

March 26, 2010

Glossary of Terms – The F’s

Filed under: A-Z of International Trade Terms, Business, International Trade, International Trade Financial Solutions — Tags: , , , , , , , , , , , , , , , , , , , , , , — sheriegriffiths.com @ 12:14 pm

From Ray Stannard, International Trade Financial Solutions.

 

The title of this post might be an unfortunate choice, but consistency is everything.  Good news re Incoterms – after ‘F’, there are no more!   As a result, I think we’ll start getting through letters more quickly.

FAS Incoterm 

Free Alongside Ship [named port].  The seller clears the goods for export and delivers them the relevant ship at a named port.  Thereafter, the buyer is responsible for the  goods.

FCA Incoterm 

Free Carrier.  Similar, but different, to FAS.  Again, the seller is responsible for the goods up to a location named by the buyer.  This could be the seller’s premises, or those of a carrier/forwarder.  If the term is FCA Seller’s Premises, the seller is only responsible for the loading of the goods; however, FCA Named Place  means that the seller is also responsible for the inland freight to that named place.

FCL

Full Container Load.  This is NOT an Incoterm.  This is where a container is used exclusively by one shipper.  Exclusive use, if you can fill the container, can result in lower shipping costs.

FCR

Forwarder’s Certificate of Receipt.  This is a document issued by the Freight Forwarders nominated by the buyer to collect goods from the seller which confirms the receipt of goods in its custody.  An FCR can replace the transport document under a Letter of Credit, but only if it is specifically mentioned as the acceptable document evidencing transport.

FIATA

The International Federation of Freight Forwarders Association.  FIATA is an independent organisation which represents many [but not all] freight forwarders in many countries throughout the world.

FOB Incoterm

Free on Board.  Probably one of the most well known of the Incoterms and, technically, the most mis-used, since title passes when the goods pass over the ship’s rail.  FOB was designed in pre containerisation days, when goods were lifted by crane at the dockside.  Technically, FCA should be used for containerised shipments, but old habits are hard to break….

Foreign Currency Accounts

 The holding of an account in any currency other than Sterling.  Normally used where a business either has 2 way currency flows and/or operates a foreign exchange policy, grouping several invoices before conversion to another currency.  The possible downside of operation such accounts can be on cashflow insofar as funds ‘may be in the wrong currency’.

Foreign Exchange Risk

 Anyone who trades in a foreign currency will have a degree of Foreign Exchange risk. The risk is caused by the minute by minute fluctuations in exchange rates.  An appreciationof this risk and understanding of what steps can be taken to mitigate this risk isa vital tool for anyone who wants a successful overseas trading strategy [buying or selling].

Forwarding Agent

Often used by smaller businesses to clear customs for goods coming into the UK from outside the EU.

Forward Contracts

Used as part of the strategy to mitigate against adverse movements in exchange rates; an example of a widely available tool to manage foreign exchange risk [see above].  You agree to buy/sell a specific amount of currency at either a fixed future date or between a range of dates, agreeing the rate today.

Free Circulation

Goods that are already in circulation within the EU, having either previously entered into the EU, with all relevant duty paid, or having originated in the EU.  In the eyes of HMRC, goods in free circulation are not classified as imports or exports.

Free Trade Zone

A designated port/area in a Country where duty free import of non prohibited goods is permitted.  Often seen in developing countries to attract business and inward investment.

Freight Forwarder

A freight forwarder will look after the shipment of goods between seller and buyer, taking care of the freight, customs clearance, insurance, etc.  Many freight forwarders specialise in certain parts of the world, so it’s important to ensure that you use one with suitable knowledge and understanding of the Countries/regions in which you trade.

Sorry for a slightly long section, but on to G’s [and more?] next month.

October 23, 2009

“Glossary of Terms – The C’s [and an 'I]“

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After last month’s rest, let’s get back to looking at some of the more common terms frequently encountered when buying and selling overseas. With the letter ‘C’, we encounter some of our first Incoterms and here I have a problem. Incoterms come under ‘I’, but all 13 of them start with a letter that precedes ‘I’. So, either I list all 13 in their correct position and keep everyone waiting until we get to the letter ‘I’ or go out of order. As you can tell from the heading above, I think the latter course makes most sense. I just need to remember, when we do reach the letter ‘I’ that Incoterms have already been covered. There are many terms that start
with C, so I’ll spread them over the next 2 issues.

C. Carnet. This usually allows the temporary import of goods for display or for demonstration purposes only without having to pay duty. It does not apply to every
Country, and different rules apply, so you do need to enquire for any specific country in which you are interested.

CIA. Cash in Advance, i.e. paying up front. For exports, this means paying before the goods leave the Country.

CWO. Cash with Order, i.e. the payment accompanies the order. Note that the transaction is binding on both parties. CIA and CWO are similar, but do have differences. Note also that these are NOT Incoterms [see below].

Certificate of ….. There are many documents often called for or needed when moving goods between countries, e.g. Cert. of Origin, Inspection Cert., Insurance Cert., etc. I’ll cover the more common ones under their correct alphabetical order.

Cert. of Manufacture. Does what it says. Completed/prepared by the seller and often notarised.

Cert. of Origin [C/O]. A statement showing the origin of the goods. Many countries demand these – for importers, the amount of duty due may depend on the country of origin. Some countieshave lower duties [preferential rates]. If you are importing from one of these you may need a GSP C/O.
For exporters, you need to see what your destination country wants and, if necessary arrange for a C/O through your local Chamber of Commerce, many of whom can also arrange certification, if needed.

Now, to the one out of order, the I.

Incoterms: This stands for International Commercial Terms and is, broadly speaking, the terms of shipment. They set out the delivery terms of the underlying goods and are recognised internationally. There are 13 terms, split into 4 categories and each one will state which party [buyer/seller] is responsible for the goods at every stage of the shipment. Each Incoterm is identified by a 3 letter code and I will include each in the relevant part of this glossary, albeit that there are probably only 4 or 5 which are seen on a regular basis. Whenever you trade internationally, you MUST use one of the recognised Incoterms. To do otherwise will land you in all sorts of problems and disputes if anything goes wrong.

OK, back to the C’s.

CFR [or C&F]. Incoterm – Cost and Freight. Under CFR terms, the seller is responsible for clearing the goods for export and for all carriage costs associated in getting the goods to the port in the destination country. The buyer is responsible for all risks [and costs] after delivery, which occurs when the goods pass over the ship’s rail in the port of shipment. This is still a regularly seen Incoterm, although it should not be applied to containerised traffic; CPT should be used instead.

CIF. Incoterm. Cost Insurance and Freight. Similar to CFR except that the seller is responsible for the cost of insuring the goods between shipment and destination ports. Again, delivery occurs when the goods cross the ship’s rail in the port of shipment. Also, like CFR, CIF is commonly seen and is not suited to containerised transport; CIP should be used.

CIP. Incoterm. Carriage and Insurance paid to [named place]. Developed for container traffic where delivery typically takes place at a container terminal, which may be miles away from a port. Delivery is made when the seller delivers the goods to his carrier, after which the buyer assumes all responsibility, except for the insurance
of the goods, which remains the seller’s responsibility.

More C’s next month.

September 8, 2009

Continuing the A-Z …

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From International Trade Financial Solutions – www.inttradefinsolns.co.uk

Glossary of Terms – The “B’s”.

2 big B’s were covered last month, so we’ll mop up the rest this month. Nothing as complex this time round.

B. [continued]…

Bank Collections. More usually referred to as Collections, so I will include this under ‘C’.

Beneficiary. Pretty obvious, but included here as, under Letters of Credit, the Exporter is also known as the beneficiary of the Credit, a potential source of confusion. Think of it as the exporter being the beneficiary of the payment.

Bonded Warehouse. Specific warehouses authorised by HMRC where imported goods can be stored without payment of duty. However, duty must be paid before the associated goods can leave the warehouse. The use of bonded facilities can benefit those businesses whose goods are subject to duty insofar as the duty can be deferred, giving cashflow advantages. However, this has to be weighed up against the costs to store the goods in the first place.

BIFA – British International Freight Association. BIFA is the body representing the UK international freight services industry. Not all freight forwarders are BIFA members, and there are pros and cons of using one. However, what is important, whoever you use to move your goods, is to be totally satisfied with their service provision and have comfort that, if things do go wrong, they will work with you to resolve. Look at the BIFA website for more information and/or to find members – www.bifa.org N.B. If you accidentally click on www.bifa.org.uk you end up at the British International Film Association – do not get confused!

Bonds and Guarantees. Often associated with tendering and/or undertaking contracts overseas. In some countries, e.g. Middle East, it is common to have to provide a tender bond when tendering for a contract [especially state backed ones]; then a performance bond if you win. You may also need to provide an Advance Payment Bond in some circumstances. In all cases, the bond is issued on your behalf by your bank and basically gives the overseas party more confidence that you can undertake the contract in hand. If you do not, they will call upon the bond. Unless you are well versed in agreeing to having these issued, you should seek proper advice before you commit, as they can be costly, difficult to cancel and have other peculiarities. Note that, in some parts of the world, performance bonds have been replaced by Stand-by Letters of Credit. Also, the words ‘bond’ and ‘guarantee’ are to all intents interchangeable.

That’s the B’s – on to the C’s next month.

July 27, 2009

“Glossary of International Trade Terms – the “B’s”"

Filed under: Uncategorised — Tags: , , , , , , , , , , , , , , , , , , , — sheriegriffiths.com @ 10:00 am

From Issue 9 of “Minimising Trading Risks Abroad” – the monthly newsletter published by Ray Stannard of International Trade Financial Solutions

Http://www.inttradefinsolns.co.uk

 

Tomorrow, “A Case Study”.  Today, Part 2 of the glossary of terms – the “B’s”.

 

That’s B’s as in the letter B, not anything else, although the 2 terms that I’m covering here are right B’s!.  Before anyone starts worrying, I’ve no intention of filling out the next 26 issues with 1 letter per month, partly because we’ll all lose the will to live and I’ll get stuck on some of the more exotic letters later on.  It just seems that the early part of the alphabet has more terms.  However, the letter B will be rewarded with more next month……..

OK, then, the 2 worst B’s.

Bill of Exchange

One of the most confusing documents until you understand it, then it’s easy – honest! Often referred to as B/E, BEx, BoE and some other variants.  Here, I’ll call them

B/E. There’s the legal definition and a more colloquial one, both of which do explain.

 

The legal one first.  B/E have their own piece of Legislation, The Bills of Exchange Act, 1882.  In it, a B/E is defined as ‘An unconditional order, in writing, addressed by one person to another, signed by the person giving it requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a certain sum of money to, or to the order

of, a specified person or to bearer’.  There, clear as mud.  Perhaps an easier way to explain is to think of a cheque.  If you think of a cheque as a form of ‘IOU’ in as much as if you owe me money, you will write out a cheque in my favour.  The B/E, however, is a ‘You Owe Me’, i.e. in the above scenario, I would write out the B/E and sign it, before giving it to you.  In turn, you would sign to acknowledge the debt due, and then pay according to the terms – straightaway [pay on demand] or later [at a fixed or determined future date].  B/E are not common in UK trade these days [except for some specific sectors] but are common in International Trade – especially for those who deal with Letters of Credit or Collections – both of which will be explained when we get to the relevant letter.  Therefore, if you do deal with these, it’s important to understand what a B/E is and, more importantly, what you can do with it, since, especially under Letters of Credit, they can be used to raise funds.

Bill of Lading

Not to be confused with B/E above.  Bills of Lading are often referred to as BL or BLading.  BL here to save space.  A BL is a document of title to the goods to which it refers.  It is issued to cover sea shipments and is usually issued by the shipping company.  It also acts as a receipt for goods received for carriage and providesevidence of the terms of the underlying contract between the shipper and transport company.  Being a document of title, the buyer [or more usually their agent] needs to present an original BL at the destination to obtain the goods.  BL are often issued in sets of 3 original – any one can be used to collect goods – plus any number of non negotiable copies.  It is important that, as a buyer, you know how many original BL are to be issued and that you can account for them all.  They are usually referred to in documentation,as, for example, 3/3BL + 2NNC, meaning 3 original Bills of Lading

[any of which can be used to obtain the goods] and 2 Non Negotiable Copies.

That’s more than enough for this month.  Both are important, though, and if you are involved in International Trade, it is well worth taking the time to understand their functions and some of the drawbacks and advantages of using them.  For Bills of Exchange, they can have a beneficial effect on cashflow in some circumstances, so find out more before you sign any contracts.

 

June 16, 2009

The Risk Ladder

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This article is taken from the latest newsletter from Ray Stannard at International Trade Financial Solutions http://www.inttradefinsolns.co.uk.

 

Tomorrow, Ray begins a glossary of terms which are apt to confound and confuse importers and exporters!

 

The Risk Ladder is one way to demonstrate some of the ways in which overseas trade can be financed.  It focuses on the relative advantages and disadvantages, mainly from a cashflow point of view and clearly shows that, usually, what’s best  for one party will be the least favoured for the other.  Such is the way with most trade.  There is always the over-riding aspect of how you get on with your counter party, plus the fact that, in many instances, one party will hold the upper hand in terms of negotiating.  For example, if you have to buy your stock from 1 supplier only, you have a much more limited bargaining hand.  Nevertheless, the Risk Ladder is still a useful tool insofar as it explains the effect of various types of payment/settlement.

From this, you can assess the impact on your cashflow.  This, in turn, helps with finance planning and, if necessary, gives you longer advance notice of any pinch points in your cashflow.

OK, so what is it?  It takes the most common forms of payment options and their appeal [or otherwise] to both an importer and exporter.  Looking at an importer first, your preference is to pay as late as possible – ideally well after you have received the goods and sold them.  However, for the exporter, he wants money up front.  The following payment methods are in

descending order of preference for an importer and ascending order of importance for an exporter.

 

  • Open Account.  Pay after receipt of goods
  • Acceptance Collections.  Payment made by the acceptance of a future dated bill of exchange with all accompanying transport and commercial documents being processed through a bank.  The longer the acceptance term, the more beneficial for the importer, as he has longer to pay.
  • Payment collections.  As above, except that there is no period of grace to pay. The buyer [importer] can only obtain the documents once he has paid for the underlying goods.   
  • Unconfirmed Letter of Credit.  More costly to set up; the importer usually has to put some collateral aside for his bank to agree to issue.
  • Confirmed Letter of Credit.  Even more expensive, but the seller [exporter] has the added benefit that a local bank [in his Country]  has added their name to the payment.

 

[Note that with Letters of Credit, it is the documents and not the goods that determine whether or not payment is forthcoming].

*      Advance Payment.  Exporter is paid before he parts with goods.

 

With all of these, ITFS can help with more explanation, indication of likely costs and all other aspects of their respective uses and benefits.

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