Trade Finance Glossary

Advising Bank

This is the bank responsible for processing of all documentation from the Issuing bank on behalf of the exporter or beneficiary.

Air Waybill

A non-negotiable shipping document, similar to a “Bill of Lading”

Aval

A guarantee to make payment on maturity that is added to and therefore inseparable from a “Promissory Note” or “Bill of Exchange”.

Bank Guarantee

This is a guarantee by a bank to pay debt should the debtor be unable to meet that debt.

Bill of Lading

A document issued by a carrier as evidence of receipt of goods and loaded for shipment, used in international trade as proof of shipment.

Bill of Exchange

A transferable non interest bearing debt instrument issued by the exporter that binds the importer to pay a fixed sum of money at a pre determined date. It is transferable by endorsement.

Confirming Bank

A bank that independently guarantees to pay a “Letter of Credit” should the issuing bank fail to do so.

Discount

The purchase of a debt obligation at a discount to its face value.

Discount Rate

The price at which a debt is discounted on purchase reflecting cost of money, size of transaction, risk profile of guarantor and country.

Endorsement

The process of transferring the ownership of a negotiable instrument such as a “Bill of Exchange” on a “without recourse” basis.

Expiry Date

The latest date by which documentation must be presented to the lender for payment of a financial instrument such as a “Letter of Credit”.

Letter of Credit

A guarantee to pay the exporter on receipt of documentation meeting the conditions outlined in the “Letter of Credit”.

Maturity Date

The repayment date on which a debt or obligation becomes due.

Negotiable

This is an instrument that may be transferred to another owner.

Non-recourse

When the purchaser buys a negotiable instrument forfeiting rights of recourse to the seller should the debtor or guarantor fail to repay.

Option

A pre agreed discount agreed by the forfaitor to an exporter for particular transaction with an agreed expiry date, issued for a fee.

Promissory Note

A negotiable promise to pay obligation issued by an importer to an exporter that may be transferred by endorsement.

Tenor

The expiry date of a financial instrument.

Trade Finance

This is a generic term referring to financial instruments that assist with the import / export of goods, such as a “Letter of Credit”.

Without Recourse

See Non-recourse.