Letter of Credit
Below are the most common documents required in an Import or Export Letter of Credit* and the definition of each document.
- Bill of Lading: A Bill of Lading is considered the most important document involved in a shipment of merchandise. An exporter receives a Bill of Lading when delivering the merchandise to the shipping company for transport to an importer.
- Order Bill of Lading: An Order Bill of Lading is a title document. Steamship companies issue one or more original Order Bills of Lading per shipment, which allows an importer to claim merchandise when it arrives. An exporter normally endorses the Bills of Lading “in blank,” which means that they are not endorsed to a specific person or institution. The party possessing any one of the original Bills of Lading can take possession of the goods.
- Airway Bill of Lading (Straight Bill of Lading): This instrument does not convey title. Airline companies issue Straight Bills of Lading called Airway Bills. Since an Airway Bill is issued only in non-negotiable form, an exporter consigns it to a specific person or institution. A copy of the Airway Bill accompanies a shipment, and an exporter is given the original to present along with other required shipping documents. To take possession of the merchandise, a party to which the merchandise is consigned needs to present proper identification. Therefore, if the air shipment is consigned to a buyer, the seller might lose control of the merchandise before payment is made. To prevent this, an Airway Bill should be consigned to the Bank.
- Commercial Invoice: A Commercial Invoice is a document that describes merchandise, as stated in the Letter of Credit, and lists the costs. An importer may agree to pay, in addition to the cost of the merchandise, charges involved in shipping the merchandise. The description of the merchandise in the Commercial Invoice and the description of the merchandise in the Letter of Credit must be identical in every way.
- Insurance Policy: Issued by an underwriting institution, the Insurance Policy states that a specified party will be reimbursed an amount in the event merchandise is damaged or destroyed.
An Insurance Policy generally covers accidental losses and covers voluntary losses when a cargo must be sacrificed to save a ship. For additional cost, losses caused by spoilage, war, civil disturbance, riots and other risks can be included in the coverage. Because commercial banks are not included in the shipping business per se, questions regarding types of coverage should be referred to a freight forwarder or a customs broker.
There are other documents included in Letters of Credit and Documentary Collections not referenced above. Importers and exporters are encouraged to contact TCOIN to discuss a particular transaction and we will assist in determining if the documents will give rise to difficulties in negotiation of the documents.