Key of Trade Finance: Documents

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Key of Trade Finance Documents
The information flow in trade finance happens
through documents Bank deals only in documents
and not in goods
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Financial Documents
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Financial Documents Whats the Purpose?

• Purpose
• Seller should be able to demand money
• Bank should be able to collect money
• It should provide for credit extension
• It should work as a receipt of payment
• The title that passes is free from equities
  (unknown defect)
• Types of Financial Documents
• Bill of Exchange
• Draft
• Promissory Note

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Types of Financial Documents

• Bill of Exchange
• Drafts
• Promissory Notes

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Bill of Exchange

• Issued by Beneficiary
• Addressed to issuing bank / nominated bank
• Is a demand of money made by seller to buyer
• Provides for payment terms (at sight, usance
  etc.)

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Bill of Exchange Key Identification Features

• Bill of Exchange is written at the top
• Text at sight/usance of this first of is
  written

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Transport Documents
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Transport Documents Whats the Purpose?

• Purpose
• Should be a means for collecting goods at
  destination
• Should ensure safe delivery of documents
• Should match with contract terms and conditions
• Should provide cover in case of damage / loss of
  goods
• Should allow only authorised persons to collect
  goods
• Types
• Bill of Lading
• Airway Bills
• Road, Rail or Inland Waterway Transport
• Courier and Post Receipts

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Bill of Lading

• Transport document representing movement of goods
  by water (ocean or sea)
• Receipt of goods given by carrier or his agent
• Contract of carriage
• Important document as it is a title to goods
• Generally it is issued in a set of 2 or 3
• The exact number issued is indicated on each bill
  of lading

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Bill of Lading Key Identification Features

• Bill of Lading written at the top
• Issuer is normally a shipping company
• Receiver of goods is named as consignee
• Port of loading discharge are given

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Airway Bill

• Transport document representing movement of goods
  by air
• Receipt of goods given by carrier or his agent
• Contract of carriage
• Generally it is issued in a set of 3
• The exact number issued is indicated on each
  Airway Bill

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Airway Bill Key Identification Features

• Airway Bill is written at the top
• Flight details are given

13
Commercial Documents
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Commercial Documents Whats the Purpose?

• Purpose
• Seller should be able to give merchansdise
  details
• Seller should be able to specify payment terms
• Document shows delivery terms
• Clear description, quantity of goods, value

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Types of Commercial Documents

• Commercial Invoice Sellers bill of merchandise
• Proforma Invoice A form of a quotation by the
  seller to a potential buyer.
• Purchase Order Buyers request for purchase of
  specified goods
• Certificate of Analysis Indicates the inner
  composition, quality and intricate nature of the
  goods broadly described in the invoice
• Weight Certificate Certifying weight of goods
• Inspection Certificate Document certifying
  inspection of the goods (prior to shipment)
  issued by agency specified by importer
• Packing List Shows the nature and number of
  goods etc. put in each packet / container

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Commercial Invoice

• Contract of sales
• Sellers description of merchandise

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Commercial Invoice Key Identification Features

• Invoice is written at the top
• Description of goods is given
• Total value of goods is given

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Regulatory Documents
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Regulatory Documents Whats the Purpose?

• Purpose
• Provide authorisation to trade to the party in
  the specified goods
• Cover the said goods
• Cover the shipment period
• Cover full value

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Types of Regulatory Documents

• Certificate of Origin Shows the country of
  origin of the goods
• Export/Import License Certification by export
  licensing authority allowing the export of goods
   
• A1 Form Every payment made abroad for imports
  should be supported by Form A1 along with
  relevant invoices
• A2 Form All the payments made out of the country
  for purpose other than imports should be
  supported by A2 Form

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Types of Regulatory Documents

• GR Form / Softex Form GR Form is a declaration
  by exporter ensuring that money earned through
  exports is coming into the country
• EDI Form/SDF Electronic GR Form
• Bill of Entry Proof of goods imported in India
  to ensure that if forex is remitted, the goods
  have come to India in lieu of that

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Insurance Documents
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Insurance Documents Whats the Purpose?

• Purpose
• To provide coverage for loss/damage of goods or
  other risks, as specified
• To cover the bank
• Cover the shipment period
• Covers full value
• Types of Insurance Documents
• Policy
• Cover Note
• Certificate

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Insurance Policy

• A contract of insurance
• Undertaking given by insurer to pay in case of
  loss / damage etc.
• Policies are generally freely assignable to
  anyone who acquires insurable interest without
  notice to underwriters

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Insurance Cover Note

• A precursor to Insurance Policy
• Replaced by actual policy

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Insurance Documents Key Identification Features

• Issued by insurance company
• Beneficiary, validity period etc. are mentioned