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.