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Insurance Documents

By
Ozgur Eker (CDCS)
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0

Insurance defined by merriam-webster dictionary as “a coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.”

Insurance can cover a wide range of activities including but not limited to agricultural insurance, health insurance, life insurance, vehicle insurance etc…

On this page, the focus is on the cargo insurances.

Cargo insurance can be defined as an insurance policy taken up to protect insurance policy holder/assured against loss of or damage to the goods during the transportation.

Cargo insurance is one of the most important elements of the international trade transactions.

Details of the cargo insurance should be determined under the sales contracts.

Who is Going to Arrange and Pay for the Cargo Insurance:

Under CIF (Cost Insurance Freight) and CIP (Carriage and Insurance Paid to a named place of destination) trade terms, the cargo insurance premium must be paid for and arranged by the exporter.

Otherwise parties can freely determine the insurer party.

What Kinds of Cargo Insurance Policies are Available for Export / Import Purposes:

There are 3 main cargo insurance types available for sea and road shipments.

  • Institute Cargo Clauses (A),
  • Institute Cargo Clauses (B) and
  • Institute Cargo Clauses (C).

Institute Cargo Clauses (A), which is also known as all risk insurance, has the widest protection coverage.

Institute Cargo Clauses (C) has the minimum insurance coverage.

Institute Cargo Clauses (Air) used in air shipments.

* Institute Cargo Clauses (A) 1/1/09
* Institute Cargo Clauses (B) 1/1/09
* Institute Cargo Clauses (C) 1/1/09
* Institute Cargo Clauses (Air) (excluding sending by Post) 1/1/09

Which Additional Clauses Should be Included in to the Cargo Insurance Policy:

Under the letters of credit transactions, the issuing banks demand some additional clauses on the cargo insurance policies together with all risks coverage for more security.

Some of the most frequently used additional cargo insurance clauses are,

* Institute War Clauses (Cargo)
* Termination of Transit Clause (Terrorism) Amended
* War and Strikes Cancellation Clause (Cargo)

Starting and Ending Points of the Cargo Insurance Coverage:

Normally the cargo insurance covers the losses that is occurred between the starting and ending point of the main carriage.

For example, a cargo insurance covers the losses that is occurred between the port of loading and the port of discharge on a port-to-port sea shipment.

But sometimes issuing banks may demand an extended coverage.

The most frequently used clause for these kinds of extensions is “warehouse to warehouse” insurance coverage.

How to Use Insurance Documents in Letters of Credit Transactions:

  • An insurance document, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies. Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.
  • An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.
  • Cover notes will not be accepted.
  • The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.
  • The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit.
  • An insurance document indicating that it covers Institute Cargo Clauses (A) satisfies a condition in a credit calling for an “all risks” clause or notation. (ISBP 2007)

Insurance Policy Sample:

cargo insurance policy sample

Insurance Certificate Sample:

sample insurance certificate

Health Certificate

By
Ozgur Eker (CDCS)
-
0

All food products that will be subject to international trade, whether of animal or non-animal origin, must be fit for human consumption and comply with all relevant food legislation such as hygiene, pesticides, genetic, labeling, contaminants, use of additives etc.

A health certificate is a document used in export import transactions, issued by the governmental organizations at the countries of origin, to certify that a food shipment is fit for human consumption, and meets safety standards or other required legislation for exporting.

As indicated by its name, this certificate gives evidence of the health condition of the goods and is usually issued by a veterinary surgeon, by veterinary authorities or the agricultural ministry. (1)

What is the Function of a Health Certificate in Export / Import Transactions?

  • Certifying that governmental body of the exporting country has been examined this particular food consignment.
  • Certifying that food of animal origin or non-animal origin subject to exporting is fit for human consumption.
  • Certifying that the food consignment has been produced according to required food legislation.
  • Certifying that the food consignment has been produced by one of the legitimate manufacturing companies.

Which Organizations Issue Health Certificates?

Health certificates are government to government declarations (exporting country’s government to importing country’s government), for this reason these certificates are issued by the authorized governmental organizations such as Department of Agriculture etc…

Examples of Health Certificate Requirements:

  • Saudi Arabia: The health certificate is required for all exports to Saudi Arabia of all kinds of meat (including poultry and seafood), meat products, livestock, vegetables, fruits, human blood, etc., attesting that they are free from pests and/or diseases.
    (Source: link)
  • European Union: Each consignment of meat and meat products, fishery products etc. that import into EU from a Non-EU member state must come from an approved non-EU country and be accompanied by appropriate signed health certification.

How to Use Health Certificate in Letters of Credit Transactions:

  1. Health certificates do not cover under specific articles in the letter of credit rules. As a result, issuing banks must define the characteristics of the health certificates when they issue the letters of credit.
  2. If no special requirement has been attached to the letter of credit, which demands presentation of a health certificate, this will be satisfied by the presentation of a signed document titled as called for in the credit.
  3. Health certificate must fulfill its function by certifying that the goods are fit for human consumption with the help of required action, such as, the results of the analysis, inspection, health, phytosanitary, quantity or quality assessment.
  4. Health certificate must be issued by the party stated in the letter of credit.
  5. If the letter of credit does not indicate by whom the health certificate must be issued, any party including the beneficiary may issue the health certificate.

Health Certificate Samples:

health certificate sample

References:

  1. Documentary Credits, Nordea Trade Finance, Page:175

Inspection Certificate

By
Ozgur Eker (CDCS)
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0

On this page, I will try to explain “Quality Control Inspections”, “Inspection Certificates” and their applications in letters of credit.

A letter of credit transaction is all about the documents, but not the actual goods or services.

The banks reach to payment or non-payment decisions under the letters of credit only by controlling the documents presented by the beneficiaries.

The banks have no connection with the actual goods or the services.

Above explanation put importers to a serious fraud risk related to quality of goods such as:

  • non-delivery of goods or,
  • goods shipped with inferior quality.

A third party inspection, that is carried out by a reputable independent inspection company, could eliminate or at least limit the fraud risk related to quality of goods considerably.

fraud risks in letters of credit

Depending on the type and value of the goods, the inspection may be commenced when the goods are in process of being manufactured or packed and until they are on board the means of transport concerned. (1)

Place of inspection can be set either in the country of origin (at the time of loading) or in the country of destination (at the time of unloading or at the warehouses where the imported goods are received).

Types of Quality and Shipment Inspections in International Trade:

Third party inspection services can be grouped under two main categories.

  1. Previous Shipment Inspections, which are performed before the goods are shipped from the exporter’s factory and
  2. Post Shipment Inspections, which are performed after the goods are shipped from the exporter’s factory. (2)

types of shipment inspections in international trade

Previous Shipment Inspections are as follows:

  • Pre-Production Inspection (PPI)
  • During Production Inspection (DUPRO)
  • Pre-Shipment Inspection (PSI)
  • Container Loading Inspection (CLI)

Post Shipment Inspections are as follows:

  • Post-Shipment Inspection

The most frequently used inspection type in international trade is the pre-shipment inspection, PSI, is a reliable quality control method for checking goods’ quality.

What is an Inspection Certificate?

An inspection certificate, sometimes called as certificate of inspection or pre-shipment inspection certificate, is a trade document used in international trade transactions, issued generally by an independent inspection company after conducting a related inspection, certifying whether or not the goods are in question are in conformity with the specifications stated on the sales contract. (3)

What are the Types of Inspection Certificates:

The certificates delivered by the inspection companies are basically of two different types:

  1. Clean Report of Findings (CRF): This is a document required by the importing (sometimes, exporting) country, as some developing countries have a large part or all of their imports (exports) inspected prior to shipment in the country of origin, as to quantity, quality and price (Pre-Shipment Inspection – PSI). These PSI schemes, entrusted to international inspection agencies, have been established by the authorities for custom, fiscal or foreign exchange control purposes and are compulsory.
  2. Commercial Certificate of Inspection: Stating the quantity and quality ( any measurable quality parameter requested by the principals). These Certificates are issued by an inspection agency acting as a neutral third party assessing the actual condition of a traded cargo between a seller and a buyer. A commercial certificate of inspection is necessary to build up a long-term relation between buyers and sellers. Bad quality of goods in trade can lead to loss of market share in the long run.

What are the Benefits of Inspection Certificates:

Main objective of the inspection certificate is to satisfy the importer or the government body that the goods are in conformity with the indicated specifications on the sales contract or proforma invoice.

  1. Inspections are important tools to reduce trade risks and avoid fraud.
  2. Shipment of low quality goods prevented.
  3. Non-delivery fraud with fake bill of lading or any other transport document prevented.
  4. Another fraud risk factor is the possibility of replacement inspected goods with the fraudulent ones after the inspection: basically the cargo inspected would not go into the shipment. This can be prevented by adding a numerical link on the inspection certificate to the transport document. For example, inspection certificate that is indicating the container number can prevent such a fraudulent action.

How to Demand an Effective Inspection Certificate in a Letter of Credit Transaction?

  • Add at least one original copy of an inspection certificate to field 46-A Documents Required as one of the necessary documents under the letter of credit.
  • Make sure that inspection certificate is issued by one of the well known inspection companies around the world. The most well known inspection companies are : SGS, Bivac/Bureau Veritas, Cotecna, Intertek.
  • Clearly indicate on the letter of credit text that inspection certificate is complying with the specifications indicated on the sales contract or proforma invoice.
  • Make sure that values indicated on the inspection certificate does not conflict with the values indicated on the letter of credit or other documents.
  • Do not forget to add a numerical link on the inspection certificate to the transport document.

References:

  1. Documentary Credits, Nordea Trade Finance, Page:175
  2. What is a Pre-Production Inspection (PPI)?, www.advancedontrade.com, Retrieved: 05.May.2018
  3. What is an Inspection Certificate or Certificate of Inspection?, www.advancedontrade.com, Retrieved: 05.May.2018

Packing List and Weight List

By
Ozgur Eker (CDCS)
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0

Packing list, is an international trade document, used to identify details of the shipment in terms of packaging.

The packing list is a detailed listing of the contents of the shipment and acts as a supporting document.

The packing list may provide a means of quickly identifying merchandise required for customs inspection, give a means of determining accurate weights and measurements, and give a means for inspectors to unpack quickly to check a piece count of the contents.

As a supporting document, the packing list is essential in the event of pilferage and/or
damage, to support an insurance claim. (1)

Packing list normally should not disclose any financial information regarding the shipment such as total amount of the cargo, unit price of the items or payments terms.

The weight list may contain the same details as the packing list but must, as a minimum, indicate the weight of the goods and usually the weight of each packing unit.(2)

Contents of the Packing List

There is no standard format exists for preparation of a packing list. However, a packing list that will be used in an international trade transaction should cover below points;

  • Name of the Exporter, address and contact details. : “consignor”
  • Name of the Importer, address and contact details : “consignee”
  • Title of the document, packing list number, packing list date : “Packing List Date : 26.June.2012”, “Packing List No : PL 26062012”
  • Definition of goods : “Crushing and Screening Machine” etc…
  • Delivery term : “FAS ANTWERP PORT, Incoterms 2010”, “FOB PORT OF SINGAPORE, Incoterms 2000” etc…
  • Quantity : “10Mtons of “Titanium Dioxide Rutile”
  • The type of package (such as pallet, box, crate, drum, carton, etc.)
  • Total number of packages (such as pallets/boxes/crates/drums, etc.)
  • The contents of each package
  • The package markings, if any, as well as shipper’s and buyer’s reference numbers
  • Reference to the associated commercial invoice such as the invoice number and date
  • A purchase order number or similar reference to correspondence between the supplier and importer
  • An indication of the carrier (sea line, airline, shipping line or road hauler)
  • Reference to the transport document, bill of lading or air waybill number
  • Reference to the vessel name, container number, truck plate number or air waybill number according to mode of transport
  • Signature and stamp (not required under letter of credit rules but it is asked by most of the custom authorities and government institutions.)

Converting a Packing List into a Weight List:

By adding details of the weight, it is possible to use a packing list as a weight list or weight certificate without any problem.

Following details should be added to the packing list to be used it as a weight list or a weight certificate:

  • Net Weight of the shipment
  • Gross Weight of the shipment
  • Weight of the each package (such as pallets/boxes/crates/drums, etc.)

How to Use Packing List and Weight List in Letters of Credit Transactions:

  • Documents may be titled as called for in the credit, bear a similar title, or be untitled. For example, a credit requirement for a “Packing List” may also be satisfied by a document containing packing details whether titled “Packing Note”, “Packing and Weight List”, etc., or an untitled document. The content of a document must appear to fulfill the function of the required document.
  • Documents listed in a credit should be presented as separate documents. If a credit requires a packing list and a weight list, such requirement will be satisfied by presentation of two separate documents, or by presentation of two original copies of a combined packing and weight list, provided such document states both packing and weight details.

Sample Packing List:

packing list sample
Image taken from https://www.advancedontrade.com/ with permission.

Sample Weight List:

weight list sample
Image taken from https://www.advancedontrade.com/ with permission.

References:

  1. Transportation Best Practices Manual, PF Collins International Trade Services, 2003, Page:22
  2. Documentary Credits, Nordea Trade Finance, Page:173

Sample Bill of Exchange

By
Ozgur Eker (CDCS)
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0

On this page, you can find a sample “Bill of Exchange”, which is drawn under a typical letter of credit transaction.

Bill of exchange can be 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 sum certain in money to or to the order of a specified person, or to bearer.

If you need further information regarding the bill of exchange, please read my previous post from this link: “Bill of Exchange“.

Please keep in mind that some banks mention “Bill of Exchange” as “Draft” in letters of credit.

So bill of exchange and draft have the same meaning.

Letter of Credit Details:

An unconfirmed letter of credit has been issued by Commerzbank AG, requires an at sight draft drawn on the issuing bank.

  • Issuing Bank:
    Commerzbank AG D-60261 Frankfurt am Main GERMANY
  • Documentary Credit Number:
    LC304/3610/12IC
  • Applicant:
    Import Hause Herrengraben 54 20459 Hamburg GERMANY
  • Beneficiary:
    Export Handel Po Box 123 Amsterdam Holland
  • Currency Code/Amount:
    EUR100000
  • Available With … By …:
    ABNANL2A (ABN Amro Bank NV, AMSTERDAM BRANCH)…BY PAYMENT
  • Drafts at …:
    Sight
  • Drawee:
    COBADEFF (Commerzbank AG, Frankfurt am Main BRANCH)

Sample Bill of Exchange / Draft

The exporter drawn the draft on the issuing bank. The bill of exchange is payable at sight.

bill of exchange sample

Remaining details of the bill of exchange are:

  • drawer is the beneficiary, who is also the exporter: Export Handel Po Box 123 Amsterdam Holland
  • drawee is the issuing bank, who is also the importer’s bank that opened the letter of credit: Commerzbank AG D-60261 Frankfurt am Main GERMANY
  • payee is also the beneficiary.

Bill of Exchange

By
Ozgur Eker (CDCS)
-
0

On this page, I will try to explain “Bill of Exchange” and its applications in letters of credit.

Banks mention “Bill of Exchange” as “Draft” in some occasions.

Bill of exchange can be used as a supporting financial document in cash against documents and letters of credit payments.

Bill of exchange is one of the most hard-to-understand concepts in trade finance terms.

May be it is why some professionals find it unnecessary and demand its removal from the letters of credit, altogether.

Definition: According to UK’s Bill of Exchange Act (1882), the bill of exchange defined as an unconditional order in writing, addressed by one person to another, signed by the person giving it (drawer), requiring the person to whom it is addressed (drawee) to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer (payee).

Parties to Bill of Exchange:

There are 3 parties involved in a typical bill of exchange transaction.

  • Drawer of a Bill of Exchange: Is the party that issues a Bill of Exchange in an international trade transaction; usually the seller or exporter.
  • Drawee of a Bill of Exchange: Is the recipient of the Bill of Exchange for payment or acceptance in an international trade transaction; usually the importer, the issuing bank or the confirming bank.
  • Payee of a Bill of Exchange: Is the party to whom the Bill is payable; usually the seller or his bank such as the advising bank. (Source: aib trade finance)

Basic Bill of Exchange Transaction:

Bill of exchange transaction process may vary along with the selected payment method.

Below image illustrates a very basic bill of exchange process under an unconfirmed letter of credit transaction.

Basic bill of exchange transaction flow chart

  • Step 1 : The exporter (drawer) draws the bill of exchange on the issuing bank (drawee) and send it to the issuing bank for acceptance through the advising bank.
  • Step 2 : The issuing bank (drawee) accepts the bill of exchange and makes the payment to the advising bank (payee) at maturity.
  • Step 3 : The advising bank transmits the payment to the exporter (drawer).

Important Note: The drawee and payee may change from one letter of credit to another. Especially, under confirmed letters of credit the drawee is the confirming bank instead of the issuing bank.

Legal Coverage: 

Two major legal traditions, common law and civil law, govern the bill of exchange slightly different as a financial instrument in international trade transactions.

  • Bills of Exchange Act (1882): Bills of Exchange Act (1882) is valid for United Kingdom, Ireland, commonwealth nations such as Australia, India, New Zealand etc..
  • Geneva Conventions (1930): Geneva Conventions (1930) is valid for Germany, France, Austria, Belgium, Saudi Arabia, Denmark, Finland, South Korea, Greece, Taiwan, Thailand, Oman, Syria, Iceland, Poland, Italy, Czech Republic, Liechtenstein, Slovakia, Luxembourg, Hungary, Malta, Albania, Netherlands, Bulgaria, Norway, Romania, Portugal, Croatia, Spain, Bosnia-Herzegovina, Sweden, Macedonia, Switzerland, Slovenia, Turkey, Serbia, Indonesia, Lebanon, Japan, Jordan etc…

How to Use Bill of Exchange in Letters of Credit Transactions:

  • UCP 600 – Article 6 states that “A credit must not be issued available by a draft drawn on the applicant.”
  • Drafts, transport documents and insurance documents must be dated even if a credit does not expressly so require.
  • Shipping documents have the following meaning under international standard banking practice; “shipping documents” – all documents (not only transport documents), except drafts, required by the credit.
  • Even if not stated in the credit, drafts, certificates and declarations by their nature require a signature.
  • The draft must be endorsed, if necessary.
  • The draft must be drawn on the party stated in the credit.
  • The draft must be drawn by the beneficiary.
  • A credit may be issued requiring a draft drawn on the applicant as one of the required documents, but must not be issued available by drafts drawn on the applicant.

International Sales Contract

By
Ozgur Eker (CDCS)
-
0

In international trade transactions, a sales contract defines the roles and responsibilities of the parties to each other.

Without a sales contract, it would not be possible to define the rights and obligations of the exporters and importers.

Definition: Contract of sale is defined as “formal contract by which a seller agrees to sell and a buyer agrees to buy, under certain terms and conditions spelled out in writing in the document signed by both parties.

Also called agreement of sale, contract for sale, sale agreement, or sale contract.” (Source : www.businessdictionary.com)

A sales contract can cover any kind of sales action such as sales of intellectual property rights, sales of real estate etc… On this page, we will be focusing only on international contracts for sale of the goods.

Usage: Under international business transactions, the exporters and importers define their roles and responsibilities to each other with sales contracts.

A sales contract is a legally binding document for both parties.

Proforma Invoices vs International Sales Contracts

There is another document available in international trade, used in the same way as the sales contract. The name of this document is the proforma invoice.

In practice, smaller transactions are handled by proforma invoices, whereas medium and higher volume transactions are covered under sales contracts.

The sales contracts governing bigger trade transactions should be written by the lawyers.

Another point of consideration when deciding to use a proforma invoice or sale contract is the duration of the business.

If business transaction will be not completed comparatively in a short period of time, such as 6 months, then the sales contract should be preferred instead of the proforma invoice.

proforma invoice vs sales contract
Proforma Invoices vs International Sales Contracts : Points of Consideration

Contents of the Sales Contract

  • Company information of the seller and the buyer (company name, address, contact details, etc.)
  • Subject of the sale contract
  • Description of the goods
  • The unit price of the goods, total contract quantity and total contract amount
  • Package and shipment details
  • Delivery date or delivery period
  • Penalties of late shipment
  • The delivery terms according to Incoterms
  • Payment terms (irrevocable documentary credit, cash against documents, electronic fund transfer)
  • Definition of trade documents that will be supplied by the exporter, how are they completed, how many originals and copies will be supplied
  • Force Majeure ( Act of God)
  • Resolution of disputes (arbitration or litigation).
  • Authorized signatures

Special Hints Regarding the Sales Contract From ISBP (International Standard Banking Practice):

UCP 600 Article 4 states that

  • “A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from its relationships with the issuing bank or the beneficiary…An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.”

Proforma Invoice

By
Ozgur Eker (CDCS)
-
0

In international trade, a proforma invoice means a trade document that states a commitment from the seller (exporter) to sell goods to the buyer (importer) at specified conditions.

Proforma invoice can be defined as a compact form of an international sales contract. In other words, it is a lite version of the international sales contract.

Proforma invoice is expected to be issued by the seller, also known as exporter in international trade, at the beginning of the transactions.

Contents of the proforma invoice may change from industry to industry, customer to customer or country to country. There is no fix and single format available. (1)

A proforma invoice is not a valid invoice in terms of accounting. Because the proforma invoice cannot be recorded as an accounts receivable by the exporters, nor can it be recorded as an accounts payable by the importers.

The commercial invoice must follow and replace the proforma invoice as an official document, for importing procedures.

Proforma invoices are widely used in today’s international trade transactions in substitution of sales contracts.

It is easy to create a single-page proforma invoice instead of writing a multiple-page sales contract.

Contents of the Proforma Invoice

A proforma invoice that is going to be used in an international trade transaction should cover below points:

  • Name of the Exporter, address and contact details.
  • Name of the Importer, address and contact details.
  • Title of the document, proforma invoice number, proforma invoice date : “Proforma
  • Invoice Date : 26.June.2012″, “Proforma Invoice No : PI26062012”
  • Definition of goods : “Crushing and Screening Machine” etc…
  • Delivery term : “CIF NEW YORK PORT, Incoterms 2010”, “FOB STOCKHOLM PORT, Incoterms 2000” etc…
  • Quantity, Unit Price, Currency, Total Price : “10Mtons of “Titanium Dioxide Rutile” from 3.000USD per Mton, Total Amount is 30.000,00 USD CIF HAMBURG PORT, Incoterms 2010.”
  • Payment Terms : “Irrevocable Letter of Credit payable at 90 Days from Bill of Lading Date”, “Cash Against Documents at Sight” etc…
  • Delivery Period : “4 weeks after confirmation”, “5 weeks after issuance of the letter of credit”
  • Bank account details of the exporter and all other additional conditions regarding the sales.

How to Use Proforma Invoice in Letters of Credit Transactions:

  • After the seller (exporter) and the buyer (importer) agreed upon certain conditions of the transaction, the importer demands a proforma invoice from the exporter.
  • The exporter prepares the proforma invoice on his company letterhead and completes it with a signature.
  • The exporter sends the proforma invoice by e-mail to the importer. Alternatively, the proforma invoice can be couriered to the importer. But, in most cases an e-mail copy of the proforma invoice would be sufficient for the importers.
  • The importer applies to his bank with the proforma invoice to open a letter of credit in favor of the exporter.
  • Banks will be using the details on the proforma invoice along with the information they gather from the importers via “Letter of Credit (L/C) Application Forms” (Import Documentary Credit Application Forms).
  • As a common practice banks refer to the proforma invoice, especially the proforma invoice date and number, on the description of goods parts of the letters of credit.

Special Hints Regarding the Proforma Invoice From ISBP (International Standard Banking Practice):

  • It is not possible present a document titled with “Proforma Invoice” instead of “Invoice” or “Commercial Invoice”. It is forbidden by current international standard banking practice, ISBP 2013.
  • “A credit requiring an “invoice” without further definition will be satisfied by any type of invoice presented (commercial invoice, customs invoice, tax invoice, final invoice, consular invoice, etc.). However, invoices identified as “provisional”, “pro-forma” or the like are not acceptable.
  • When a credit requires presentation of a commercial invoice, a document titled “invoice” will be acceptable.
  • UCP 600 article 4-b : Credits v. Contracts states that “An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.”
  • The sales contract between the exporter and the importer is independent from the letter of credit. Which means that the beneficiary of the letter of credit will be paid by the issuing bank as long as the beneficiary comply with the terms and conditions of the letter of credit.

Proforma Invoice Sample

proforma invoice sample
This illustration taken from https://www.advancedontrade.com/2016/07/export-proforma-invoice-templates-exw-fob-cif.html with permission.

References:

  1. What is a proforma invoice? How does it work?,  www.advancedontrade.com, Retrieved: 24.April.2018

Sample Legalized Commercial Invoice

By
Ozgur Eker (CDCS)
-
0

On this page, I would like to share a legalized commercial invoice example.

The invoice was prepared in 2012 by one of Turkish manufacturer and exporter in accordance with the letter of credit, which was issued by a Yemen bank.

What does a legalized commercial invoice mean in international trade?

Legalization of a commercial document means the authentication of the signatures as seen on the document.

Once the signatures are authenticated, the document becomes legalized and could be used as a valid document in legal procedures.

Please check certified commercial invoice and legalized commercial invoice page for further information regarding the topic.

Front Side of the Legalized Invoice

legalized commercial invoice sample front side

You can see the commercial details of the transaction on the front page of the legalized invoice.

In addition to commercial details, you can see seller company’s signature and stamp at the bottom of the page.

Just above the seller’s signature, you can see chamber of commerce’s signature and stamp certifying that the goods are of Turkish origin.

Additionally, chamber of commerce approves that the seller’s signature on the commercial invoice is authentic and genuine.

Back Side of the Legalized Invoice

legalized commercial invoice sample back sideOn the rear side of the legalized invoice, you can see a chain of signatures and stamps belonging to different parties.

The first signature and stamp belongs to a Turkish governmental body which is located in the same province as the local chamber of commerce. This signature approves that the local chamber of commerce’s signature is authenticated.

The second signature and stamp belongs to Embassies and Consulate Generals of Ministry of Foreign Affairs of the Republic of Turkey. This signature proves that the previous signature is authentic.

Finally, you can see Yemen Embassy’s signature and stamp, which is legalizing the commercial invoice.

Certified Commercial Invoice and Legalized Commercial Invoice

By
Ozgur Eker (CDCS)
-
0

A certified commercial invoice is a commercial document, which is issued by the beneficiary of the letter of credit and certified by the chamber of commerce.

Legalized invoice, also known as consular invoice, in addition to chamber of commerce certification, contains a signature and stamp of an embassy or consulate of the relevant country.

The consular invoice is made out on a special form available at the embassy or consulate of the relevant country, or issued as a copy of the commercial invoice, depending on the requirements of the country in question. (1)

Which Countries Require Certified Commercial Invoice or Legalized Commercial Invoice?

Generally Arab States located in the Middle East, such as Jordan, Yemen, Saudi Arabia, Egypt etc., demand certified and/or legalized invoices during the import customs clearance operations.

Normally, certification or legalization procedures should be done by the exporters.

What is the Function of a Certified Invoice or Legalized Invoice?

Certified and legalized invoices inherited from the 1970s and 1980s, where most underdeveloped countries had been implementing high custom duties on imported goods in order to protect their domestic manufacturers.

Later on, almost all of these countries, which had been employing import substitution strategy, shifted their directions towards open economic policies with significantly reduced custom tariffs.

As a result the need for the certified or legalized invoices have been reduced considerably.

Nevertheless these kind of documents generate revenue for the embassies and chambers of commerce.

For this reason, even today some countries are still demanding certified invoices or legalized invoices despite their limited operational value.

Explanation of Legalized Invoice Function with a Sample

custom tariff automobile egypt
An importer has to pay 135% import tariff duty when importing a standard family car to Egypt. (Please see picture on the left for details) In order to pay less custom duties, importer companies who located in with high custom duties countries, demand commercial invoice which shows only a portion of the actual sales amount. In order to prevent such actions that cause custom tax losses, governments demand certified or legalized invoices from the importers.

What sort of information a certified invoice or legalized invoice should contain?

A certified or legalized invoice should contain all details that a standard commercial invoice normally indicates, but in addition to this information a certified invoice should also contain the signature and stamp from the respected chamber of commerce.

If you get the certified invoice signed and stamped by a respected embassy, then you will be having a legalized invoice.

Standard Commercial Invoice

  • Name and address of consignor ( seller, supplier company, exporter company)
  • Name and address of the consignee ( buyer, importer company)
  • Description of goods, quantity , net weights, gross weights,
  • Shipping marks and numbers,
  • Origin of goods
  • Trade terms ( FOB Hamburg Port, Germany Incoterms 2010, CIF Los Angeles Port, USA Incoterms 2010 etc.)
  • Unit price, total amount, discounts or rebates,
  • Freight cost and insurance cost if available (in case of CFR, CPT, CIF or CIP shipments)
  • Name of the vessel, voyage number and date of shipment.
  • If shipment is insured by the buyer shipper must note this fact on the invoice.
  • The invoice should also contain a statement that the products being shipped are of ( xyz country ) origin and that they are manufactured in the ( xyz country ).
  • If the products contain any foreign components then- besides the full name and address of domestic manufacturer the full names and addresses or all the manufactures involved must be given.

Certified Commercial Invoice

Certified commercial invoice usually bears the signature and stamp of the local chamber of commerce.

In some cases, letter of credit may indicate that the certificate of origin must be certified by a special chamber of commerce such as one of the Arab Chambers of Commerce resident in the exporting country.

Legalized Commercial Invoice

  • Generally three copies of the standard commercial invoice will be required during the import clearance of the goods. In most cases, one original copy of the commercial invoice needs to be legalized according to letter of credit conditions.
  • Exporters have to make sure that the content of the standard invoice is correct and complete as indicated above. ( Please keep in mind that invoice content for legalization may change from one country to another. Double check the invoice content with the respected embassy before submission)
  • A responsible member of the exporting company should sign a statement that the invoice is true and correct and contains the correct origin of the goods. (if required)
  • The invoice must be legalized with a signature and stamp by the Consular Section at the Embassy.

Legalized Commercial Invoice Example

 References:

  1. Documentary credits in practice, Reinhard Längerich, Second edition – 2009 Nordea Trade Finance, Page:169
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