In the exporting and importing trade, proper presentation of documents by the seller is not less important than the physical delivery of goods to the buyer in good condition. All the parties involved in the international commodity trade transaction initially deal with the documents that have been mutually agreed before the goods arrive at the destination. As a corollary to this international trade practice, documents also play key role in a letter of credit transaction. Banks as a majo players in the documentary credit, exclusively depend on documents alone to decide whether payment or negotiation/rejection of credit is to be effected. If proper documents are presented, bank will make payment without any hesitation whether or not actual goods shipped do comply with the sales contract. Therefore it is of prime importance for both the seller and the buyer to decide clearly on the documents that are required for the accomplishment of sale transaction before issuance of letter of credit.
The size and composition of the documentation are greatly influenced by the nature of goods, type of transport, destination of shipment, and delivery terms and the requirements of exporter’s and importer’s governments. Taking all these factors into consideration, close attention to be given to list down documents precisely which are sound for complying presentation without any risk of discrepancy to arise during implementation. Occurrence of slightest discrepancy in the required documents may cause additional cost & delays in the implementation of credit transaction. We will try to focus our discussion on the main documents commonly used in the international commodity trade.
Common Export / Import Documents
List of documents commonly used in the international trade are shown below. It should be noted that the list of documents that accompany a letter of credit, is basically created on the basis of specific requirements of both the seller and the buyer and their governments. As a result the list varies from country to country under different types of commodity transaction.
The commercial invoice is an invoice/bill from the seller to the buyer for payment of the goods sold under a sales contract. It is a complete document of a trade transaction which contains invoice number, full listing of the goods, quantities, shipping date, mode of transport, address of the shipper and buyer, the delivery and payment terms. The buyer requires the invoice to certify ownership and to initiate payment. Some governments use the commercial invoice to determine the true value of the goods for assessing customs duties.
Pro Forma Invoice
An invoice provided by the seller prior to the shipment of merchandise, informing the buyer regarding quantities of goods to be sent, their value, and importation specifications (weight, size and similar other characteristics). This is not issued for demanding payment from buyer but may be used when seller is in need to apply for an import license or for arranging foreign currency.
It is a document required by some foreign countries, showing shipment information such as consignor, consignee, and value & description of goods etc. It is certified by the consular official of the foreign country and is used by the importing country’s customs officials to verify the value, quantity and nature of the shipment.
This is a basic commercial document through which an international deal of sale is established between a Seller (exporter) and a buyer (importer). This is an agreement between the buyer and the seller that incorporates every details of commodity transaction under such sale contract. Since this is a legally binding document on both the parties, its workability needs to be thoroughly examined before signing.
Some purchasers and countries may require such Inspection certificate in order to certify specifications and price of goods shipped with a view to ensure security. Usually the job is performed by a third party.
The packing list is a document which shows item wise goods contained in each package. The packing material is composed of box, crate, drum and carton. It also indicates the dimensions and weight of each package. This list is used by the custom officials and the shipping company to determine the total weight & volume of cargo being shipped.
Dock receipt and warehouse receipt
These receipts are used by the domestic carrier to transfer the shipping obligation from domestic carrier to the international carrier, once the goods reach the port of embarkation/terminal for export.
It is an important document in the commodity transaction. This insurance document certifies that the goods are fully insured and the insurance will cover the unforeseen risk of loss or damage to the cargo during transit. It also mentions the amount of insurance coverage provided to the goods being shipped.
Shipper’s export declaration
The Shipper’s Export Declaration is a form prepared by a shipper/exporter indicating the value, weight, destination, and other information about an export shipment. It is basically used to exercise control over exports by the custom authority of the exporting country and also to collect trade statistics.
Phytosanitary (plant health) Inspection Certificate
There is an international binding that the exporting country should issue a Phytosanitary Certificate against any consignment of plants or planting materials to meet the requirement of importing country. This certificate will guarantee that the consignment is free from pests and harmful plant diseases and comply with the current phytosanitary regulations of the importing country.
Certificate of origin
Certificate of origin is a document required by some countries. It is a signed statement certifying the origin of the goods being traded. This certificate is usually signed by local trade body i.e Chamber of Commerce and Industry. If the buyer requires this document, he should stipulate the requirement in the letter of credit.
Export / Import License
A document issued by the appropriate government agency / organization authorizing private traders to export and import some listed commodities from specified countries. Prepared by: Trade and Industry Department / Customs & Excise Department of the Government.
Bill of Lading (B/L)
A Bill of Lading (B/L in short) is a vital legal document in international trade without which a business deal between an overseas ‘Buyer’ & ‘Seller’ cannot take place. A B/L serves as an evidence of contract between the person shipping the goods (Exporter), the carrier (Shipping line) and the receiver of goods (Consignee). B/L is signed by the Master of the vessel or his agent on behalf of the shipping line.
Documentary Credit or Letter of Credit
Documentary credit or letter of credit is an undertaking issued by a bank (Issuing bank) for the account of the buyer (the Applicant) or for its own account, to pay the Beneficiary (the Exporter) the value of the Draft and/or documents, provided that the terms and conditions of the Documentary Credit are complied with. Letter of Credit serves as a viable financial instrument in the international trade to materialize commodity credit transaction. All the detail terms and conditions of L/C are to be created by the seller and the buyer through negotiation as per their requirements in the light of contract of sale. Once they mutually agree on details, the buyer issues letter of credit to the seller through his bank (issuing bank).