A Brief Trade Finance Glossary

These acronyms and terms may prove useful in understanding any trade finance solutions you may be considering.

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.