Glossary

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 Advising bank

The bank in the exporter’s country that agrees to pay the exporter if the terms and conditions of a letter of credit have been met and if the funds have been transferred to it by the issuing bank in the buyer’s country.

 Assignment

The transfer of rights and/or obligations under a contract from one party to another. With respect to an export credit guarantee this most often applies where an exporter assigns the benefits of insurance it has obtained from a credit insurer to a bank as security for financing.

 Aval, Avalise

A guarantee by a third party (normally a bank) to assume the burden of a debt in the event of a default.  An aval usually takes the form of an endorsement "per aval" and signature from the bank on the back of a bill of exchange or promissory note. This then puts the bank broadly into the position of an issuing bank under a letter of credit. The legal enforceability of an aval may vary from country to country but should always be checked in advance. Such bills and notes are widely used in forfaiting.

 Back-to-back credit

A transaction in which the existence of one letter of credit serves as collateral/security to support the issuance of a second, though independent letter of credit (called the counter-credit).

 Basis point (bp)

One-hundredth of one percentage point (1bp equals 0.01%). One basis point is the smallest measure used to quote yields on bills, notes, and bonds.

 Berne Union

An international forum for export credit agencies from over 40 countries.  They exchange ideas and experiences, and draw up general conditions for the framework governing the activities of export credit agencies.

 Bid bond

A bond or guarantee, normally issued by a bank on behalf of an exporter in favour of a buyer that provides that if an exporter submits a bid or tender and is awarded the contract, but then fails to conform or to comply with the terms of its tender, the bond may be called. A bid bond gives the buyer some financial assurance that bidders will comply with the terms of their bids. In theory, the calling of the bond should compensate the buyer for the costs of the aborted tender and of re-tendering and re-awarding the contract.

 Bill of exchange

An unconditional written order that binds one party to pay a fixed sum of money to another party on demand or at a predetermined future date.  For example, a bill of exchange is drawn up by the exporter and accepted (and signed) by the importer, who then is responsible for paying on presentation of the bill at the appropriate time.  When the bill bears no date, it is normally referred to as a sight bill. Where credit is involved, bills are variously referred to as time bills, tenor bills, or usance bills. Once accepted, bills can be sold or discounted. Bills accepted by companies with a high credit rating or that have the aval of a bank are often used in forfaiting.

 Bill of lading

A very important document in international trade that provides evidence of receipt of goods by the shipper, gives details of the conditions of transport and destination, and, importantly, normally conveys title to the goods.

 Bond

A financial guarantee, issued by a bank or insurance company, allowing the beneficiary to draw down if the exporter has defaulted, eg if the goods and services are unsatisfactory. Most bank bonds are "on-demand" which means the buyer does not need to justify or provide evidence of his dissatisfaction. See also bid bond, performance bond.

 Buyer credit

An arrangement in which an exporter enters into a contract with a buyer, which is financed by means of a loan agreement between a bank in the exporter's country and a bank in the buyer's country. The export credit agency in the exporting country typically provides a guarantee to the lending bank. The exporter can draw on the loan as the work is done and accepted. The international buyer / bank makes loan repayments to the lending bank in accordance with an agreed repayment schedule commencing after the delivery of the goods or services.  The key benefit of a buyer credit is the Isabella clause.

 Cash flow

The cash being received and spent by a business or project during a defined period of time.

 CFR (Cost and Freight)

An Incoterm that represents an exporter’s obligation to pay for the cost of transport to the port of destination. The buyer pays for the insurance and transportation of the goods from the port of destination to its factory. The passing of title (ownership and risk) occurs when the goods pass the ship’s rail at the port of shipment, which means that this term cannot be used for airfreight or land transport and also is inappropriate for most containerised sea shipments (the Incoterm CPT is the appropriate one for these).

 CIF (Cost, insurance and freight)

An Incoterm that represents an exporter’s requirement to cover the cost of transport to the port of destination, and to provide appropriate marine insurance coverage.  The passing of title (ownership and risk) occurs when the goods have been delivered to the marine carrier or have been delivered on board the shipping vessel, depending upon the terms of the contract.

 CIP (Carriage and Insurance paid to)

An Incoterm that is the same as CPT, except that the exporter also pays for the insurance. The passing of title (ownership and risk) occurs when the goods have been delivered into the custody of the first carrier, which means that the buyer bears all risk and any additional costs occurring after the goods have been so delivered.

 CIRR (Commercial Interest Reference Rate)

The CIRR rates are minimum interest rates fixed on a monthly basis in accordance with an agreement between the OECD countries. Public authorities may not support export credits at lower rates than the CIRR.

 Commercial risk

One of the two main categories of risk covered by credit insurers (the other is political risk). Commercial risks are linked to a corporate buyer or bank’s ability and willingness to pay, and may include insolvency or bankruptcy, or unwillingness to take delivery of the goods (i.e. repudiation).

 Commitment fee

A per annum fee applied to undisbursed balances that lenders are committed to lend; the fee is charged until the end of the availability period.

 Confirmed letter of credit

A letter of credit, issued by a foreign bank, with validity confirmed by another bank. An exporter whose payment terms are a confirmed letter of credit is assured of payment even if the foreign buyer or foreign bank defaults.

 Consignee

The person / company / bank to which the goods are delivered - usually to the importer or the Collecting Bank.

 Consignment

Shipment of goods.

 Consignor

Also called shipper, it’s the person / company who sends goods by ship, by land or air.

 CPT (Carriage paid to)

An Incoterm that means the exporter pays for the freight of the goods to the named destination. The buyer pays for the insurance. The title (ownership and risk) transfers when the goods have been delivered to the custody of the first carrier, and not at the ship's rail. Accordingly, CPT can be used for all modes of transportation, including multimodal transport.

 Credit information

Information supplied by a credit agency on the economic circumstances of the buyer/borrower. Applications for an NZECO guarantee covering commercial risks should be accompanied by credit information.

 Credit insurance

Credit insurance protects the insured party (usually the seller), in exchange for a premium, against a range of risks that result in non-payment by the buyer.  Under an export credit guarantee, both commercial and political risks are normally insured.

 Credit period

The period from the time of delivery or acceptance of goods, or from the commissioning of the project, until repayment is complete.  Maximum credit periods are set for repayment periods in respect of certain countries and/or industries, in accordance with the OECD Consensus Arrangement and other international guidelines.

 Credit rating

Credit ratings are established and monitored by rating agencies (i.e. Standard & Poors), which consider a variety of factors to determine a company's health, financial stability and its investment value. Ratings are a measure of risk—an assessment of a company's ability and willingness to repay loans in full and on time.  The higher the credit rating, the higher the level of confidence in repayment—and the lower the borrowing interest rate the company has to pay on a loan.

 DDP (Delivered Duty Paid)

This Incoterm represents an exporter’s maximum obligation.  It means that the exporter pays for all costs and bears all risks until the goods have been delivered to the buyer’s premises (or other named destination).  This term can be used irrespective of the mode of transport.

 DDU (Delivered Duty Unpaid)

An Incoterm that represents the exporter’s obligation to pay for all transportation costs and to bear all risks until the goods have been delivered at the place of the named destination.  However the exporter is not responsible for the payment of any duty / import clearance.

 Debt leverage

The ratio of borrowed money to total capital.