Payment Methods & Financial Terms
Master essential payment and financial terminology used in international trade, banking operations, and cross-border transactions.
📖 Learning Objectives
This comprehensive guide covers 20 essential payment and financial terms used in international trade. Each term includes pronunciation, detailed definition, three professional annotations, real-world example, and practical scenario to ensure thorough understanding.
💰 Essential Payment & Financial Vocabulary
Narrow Coverage
/ˈnæroʊ ˈkʌvərɪdʒ/
Insurance coverage that protects against only specifically named perils or risks, excluding all other potential losses
Note 1: Versus All-Risk Coverage
Narrow coverage policies list exact risks covered (fire, theft, collision), while all-risk policies cover everything except specific exclusions. Narrow coverage is cheaper but leaves gaps – buyers must carefully assess which perils are likely and ensure adequate protection.
Note 2: Common Applications
Narrow coverage is common for low-value cargo, short domestic shipments, or when buyers want minimal insurance to reduce costs. International shipments typically require broader coverage due to increased risks during transit.
Note 3: Claim Limitations
Claims under narrow coverage are frequently disputed when the cause of loss isn’t clearly within named perils. Insurers interpret coverage strictly – if damage results from an unnamed peril, claims are denied regardless of circumstances.
Example Sentence
“The narrow coverage policy only protected against fire and collision, so when the cargo was damaged by seawater, our claim was denied.”
Practical Scenario
A risk manager advises: “The buyer requested narrow coverage to save $2,000 on premiums for this $500,000 shipment. However, narrow coverage excludes water damage, theft, and contamination – risks that frequently occur in ocean transport. I recommend upgrading to all-risk coverage; the additional premium is minimal compared to potential uninsured losses.”
Nostro Account
/ˈnɑːstroʊ əˈkaʊnt/
An account that a domestic bank holds in a foreign currency at a foreign bank, used to facilitate international payments and foreign exchange transactions
Note 1: Banking Infrastructure
Nostro accounts enable banks to settle cross-border payments without transferring funds internationally for each transaction. Banks maintain nostro accounts in major financial centers (New York, London, Hong Kong) in key currencies (USD, EUR, GBP) to facilitate customer transactions efficiently.
Note 2: Versus Vostro Account
“Nostro” (Latin for “ours”) is the domestic bank’s view of the foreign account. “Vostro” (Latin for “yours”) is the foreign bank’s view of the same account. A Bank’s nostro account at B Bank is simultaneously B Bank’s vostro account.
Note 3: Operational Use
When processing international payments, banks debit/credit their nostro accounts. For example, a Chinese bank paying a US supplier debits its USD nostro account in New York rather than sending physical funds, enabling same-day settlement.
Example Sentence
“Our bank maintains a USD nostro account with JPMorgan Chase in New York to process US dollar payments for our import clients.”
Practical Scenario
A treasury manager explains: “We process 200+ USD payments monthly for importers. Maintaining a $5 million nostro account in New York costs $15,000 annually in fees, but enables instant USD settlements and earns overnight interest. Without it, every payment would take 2-3 days and cost $50 in correspondent bank fees – quickly exceeding nostro maintenance costs.”
Notice of Abandonment
/ˈnoʊtɪs əv əˈbændənmənt/
A formal declaration by the insured party to the insurer, relinquishing all rights to damaged or lost cargo in exchange for receiving the full insured value as total loss compensation
Note 1: When to Use
Notice of abandonment is filed when cargo is severely damaged, recovery is impossible, or repair/salvage costs exceed the cargo’s value. By abandoning the cargo, the insured receives full compensation while the insurer assumes ownership and salvage rights.
Note 2: Legal Requirements
Notice must be given promptly upon learning of loss circumstances (typically within reasonable time, often 60 days). It must be unconditional and clearly express intent to abandon. Insurers can accept or reject – acceptance is not automatic.
Note 3: Insurer’s Options
Insurers may accept abandonment (paying total loss and taking salvage rights), reject it (treating as partial loss), or negotiate. Rejection forces the insured to pursue partial loss claims for actual damages while retaining cargo ownership and disposal responsibilities.
Example Sentence
“After the vessel sank with our electronics cargo, we filed a notice of abandonment to claim the full $2 million insured value.”
Practical Scenario
An insurance adjuster reviews: “Following the warehouse fire, 60% of the fabric inventory shows smoke and water damage. Salvage value is estimated at 15% of original value. I recommend filing notice of abandonment for the full $800,000 policy limit. The insurer will likely accept, pay total loss, and sell salvage to recoup losses. This is preferable to a partial loss claim requiring extensive damage assessment and protracted negotiations.”
Open Repo
/ˈoʊpən ˈriːpoʊ/
A repurchase agreement (repo) without a fixed maturity date, where either party can terminate by providing agreed notice, typically used for short-term liquidity management
Note 1: Structure and Flexibility
In open repo, one party sells securities with an agreement to repurchase at a floating interest rate, continuing indefinitely until either party terminates with notice (usually 1-7 days). This provides flexible short-term financing without repeatedly negotiating new agreements.
Note 2: Interest Rate Mechanism
Open repo rates reset daily or weekly based on market conditions, tracking overnight lending rates. This protects both parties from interest rate risk – lenders aren’t locked into low rates if markets rise, borrowers benefit if rates fall.
Note 3: Use Cases
Banks and financial institutions use open repo for: managing daily liquidity needs, financing security inventories, adjusting balance sheets, or parking excess cash. The flexibility suits uncertain funding needs where fixed-term repos would be inefficient.
Example Sentence
“We entered an open repo agreement with the central bank, allowing us to adjust our liquidity position daily without fixed maturity constraints.”
Practical Scenario
A treasury director implements strategy: “Our trade finance portfolio generates unpredictable daily cash flows – some days we’re $10 million surplus, others $5 million short. We’ve established a $50 million open repo facility with three counterparties, allowing us to repo securities overnight when cash-rich and reverse when cash-poor, with 2-day termination notice. This eliminated costly overdrafts and maximized returns on excess cash.”
Over-entry Certificate
/ˈoʊvər ˈɛntri sərˈtɪfɪkət/
A customs document acknowledging that imported goods were declared at a value or quantity exceeding the actual shipment, allowing correction and potential duty refund
Note 1: Common Causes
Over-entry occurs from clerical errors in declarations, overestimation to ensure adequate duty payment, partial shipments where full quantity was declared, or currency conversion mistakes. Detecting over-entry requires comparing declarations to actual delivered goods.
Note 2: Correction Process
Importers must file for over-entry certificates within prescribed timeframes (typically 1-3 years from entry date), providing evidence of the error through shipping documents, invoices, and physical cargo records. Customs verify claims before issuing certificates authorizing refunds.
Note 3: Financial Impact
Over-entry ties up working capital in excess duty payments and incurs carrying costs until refunds are processed. However, intentional over-declaration (hedging strategy) can prevent penalties if actual values are unclear, trading immediate cash outlay for certainty.
Example Sentence
“We applied for an over-entry certificate after discovering we declared 10,000 units but only received 8,500, resulting in $45,000 overpaid duties.”
Practical Scenario
A customs broker alerts a client: “Your annual audit revealed 15 instances of over-entry totaling $280,000 in excess duty payments over the past two years. Most resulted from declaring full PO quantities when partial shipments occurred. We’re filing for over-entry certificates on all qualifying entries. Recovery will take 6-9 months, but you’ll recoup most overpayments. Going forward, we recommend reconciling declarations against packing lists before filing.”
Overdrawing Negotiation
/ˌoʊvərˈdrɔːɪŋ nɪˌɡoʊʃiˈeɪʃən/
Presenting documents under a letter of credit for an amount exceeding the L/C value, which constitutes a discrepancy and typically results in document rejection
Note 1: Causes of Overdrawing
Overdrawing occurs from arithmetic errors in invoice calculations, including unauthorized charges (freight, insurance) in the draft amount, currency conversion mistakes, or attempting to claim partial shipment values exceeding per-shipment limits specified in the L/C.
Note 2: Banking Response
Banks strictly reject overdrawing as a discrepancy. They cannot pay amounts exceeding L/C values without applicant authorization. Even $1 overdrawing causes rejection, forcing beneficiaries to either amend documents or seek buyer approval for the discrepancy.
Note 3: Prevention
Prevent overdrawing through: careful invoice calculation verification, understanding what charges can be included in draft amounts, using L/C value as absolute ceiling, and maintaining tolerance margins (drawing 98-99% of L/C value) to accommodate rounding differences.
Example Sentence
“The bank refused our documents due to overdrawing negotiation – we drew $101,500 against an L/C with maximum value of $100,000.”
Practical Scenario
An export manager addresses an error: “Our team drew $525,000 against a $500,000 L/C by mistakenly including $25,000 freight charges in the draft. The bank rejected our documents for overdrawing. We must either: (1) reissue invoice/draft for $500,000 maximum, absorbing the $25,000 freight cost, or (2) request L/C amendment increasing value to $525,000 – which will delay payment by 2-3 weeks. This error just cost us either $25,000 or significant time delays.”
Perfect Entry
/ˈpɜːrfɪkt ˈɛntri/
A customs declaration that is complete, accurate, and fully compliant with all regulatory requirements, requiring no corrections or additional documentation
Note 1: Requirements for Perfect Entry
Perfect entry requires: correct HS classification codes, accurate values and quantities, complete commercial documentation, proper import permits/licenses, correct duty calculations, and full compliance with country-specific regulations. Any deficiency prevents “perfect entry” status.
Note 2: Benefits
Perfect entries receive expedited clearance, avoid examination and delays, reduce demurrage costs, minimize penalty risks, and demonstrate compliance credibility. Authorized Economic Operators (AEOs) with high perfect entry rates receive additional facilitation benefits.
Note 3: Quality Control
Achieving high perfect entry rates requires: investment in customs compliance systems, staff training, pre-clearance validation, working with experienced brokers, and continuous monitoring of changing regulations to prevent classification or valuation errors.
Example Sentence
“Our company maintains a 98% perfect entry rate, resulting in minimal cargo delays and optimal customs relationship.”
Practical Scenario
A compliance director reports: “Last year, only 85% of our entries were perfect – 15% required corrections, causing average 3-day delays and $180,000 in demurrage. We’ve implemented a pre-filing validation system checking HS codes, values, and documentation completeness. First quarter results show 96% perfect entry rate, reducing delays by 60% and saving $120,000 annually. Target is 98% by year-end.”
Permissible Error
/pərˈmɪsəbl ˈɛrər/
An allowable deviation or tolerance in quantity, quality, or specifications that does not constitute a breach of contract or grounds for rejection
Note 1: Common Tolerances
Standard permissible errors include: ±5% quantity variance in bulk commodities, ±2% weight tolerance in packaged goods, minor color shade variations within industry standards, and dimensional tolerances per engineering specifications. Contracts should explicitly state acceptable margins.
Note 2: Industry Standards
Different industries have established permissible error norms: textiles allow color variance within Delta E standards, agricultural products permit moisture content ranges, mechanical parts specify dimensional tolerances (±0.1mm), and Incoterms allow slight quantity variations without price adjustment.
Note 3: Dispute Prevention
Clearly defining permissible errors in purchase orders prevents disputes. Specify: acceptable tolerance ranges, testing methods for verification, who bears costs if tolerances are exceeded, and whether price adjustments apply within permissible ranges.
Example Sentence
“The contract specified a permissible error of ±3% in quantity, so receiving 9,700 units against an order for 10,000 was acceptable.”
Practical Scenario
A buyer disputes a shipment: “We ordered 50,000 meters of fabric but received only 48,500 meters – a 3% shortage. However, our purchase order states ‘±5% permissible error in quantity with proportional price adjustment.’ Since the shortage falls within permissible error, we must accept the cargo but are entitled to a 3% price reduction: original value $250,000, adjusted to $242,500.”
Petty Patent
/ˈpɛti ˈpeɪtənt/
A utility model or minor patent providing shorter-term, less stringent intellectual property protection for incremental innovations that don’t meet full patent requirements
Note 1: Versus Standard Patents
Petty patents (utility models) offer 7-10 years protection versus 20 years for standard patents, have lower inventiveness thresholds, faster registration (6-12 months versus 2-4 years), lower costs, but aren’t available for all invention types (typically exclude processes and substances).
Note 2: Strategic Uses
Petty patents suit: incremental product improvements, design modifications, tool innovations, packaging solutions, and simple mechanical devices. They provide cost-effective protection for innovations with short commercial lifecycles or lower market value.
Note 3: Geographic Availability
Petty patent systems exist in China, Germany, Japan, Taiwan, and other countries but aren’t universally available. Companies must consider: target markets’ IP systems, protection duration needs, and budget constraints when choosing between petty patents and standard patents.
Example Sentence
“We filed for a petty patent in China to protect our improved packaging design, saving $15,000 compared to a full patent application.”
Practical Scenario
An IP attorney advises: “Your modified phone case design showing improved grip features qualifies for protection, but standard patent costs ($25,000 plus 3-year wait) aren’t justified given the product’s 18-month market lifecycle. I recommend filing petty patents in China, Germany, and Japan (our main markets) for $8,000 total, providing adequate protection during the product’s commercial lifespan while preserving budget for more substantial innovations.”
Positive List
/ˈpɑːzətɪv lɪst/
A regulatory approach where only specifically listed items, activities, or sectors are permitted, with everything not explicitly included being prohibited
Note 1: Versus Negative List
Positive lists require explicit permission for each item (restrictive approach promoting caution), while negative lists allow everything except prohibited items (liberal approach promoting innovation). Positive lists are common in pharmaceuticals, chemicals, and sensitive sectors.
Note 2: Trade Applications
Countries use positive lists for: controlled imports requiring licenses, foreign investment sectors, customs duty preferences under FTAs, product standards certifications, and authorized dealer/distributor registrations. Items off-list face restrictions or prohibitions.
Note 3: Compliance Challenge
Positive lists create uncertainty – businesses must verify each product/activity is specifically authorized. Gaps in lists delay approvals as regulators must formally add items. This slows innovation and trade compared to negative list approaches.
Example Sentence
“India maintains a positive list for FDI in the defense sector – only specifically approved categories can receive foreign investment.”
Practical Scenario
A market entry consultant warns: “Brazil operates a positive list for cosmetic ingredients – only those specifically authorized can be used. Your new anti-aging serum contains three compounds not yet on Brazil’s positive list. We must file petitions with ANVISA to add these ingredients, requiring safety data, clinical studies, and 12-18 months approval time. Until listed, you cannot import or sell products containing these ingredients in Brazil.”
Presumption Taxation
/prɪˈzʌmpʃən tækˈseɪʃən/
A tax assessment method where authorities presume income or profit based on external indicators rather than actual financial records, commonly used for small businesses or hard-to-audit sectors
Note 1: Assessment Basis
Tax authorities presume income from indicators like: business size, industry norms, turnover thresholds, number of employees, equipment value, or geographic location. For example, restaurants may be taxed based on seating capacity regardless of actual revenues.
Note 2: Administrative Efficiency
Presumption taxation reduces audit complexity and compliance costs for both taxpayers (simplified reporting) and authorities (reduced examination needs). It’s particularly useful where record-keeping is poor or cash transactions dominate.
Note 3: Fairness Concerns
Critics argue presumption taxation ignores actual economic performance – profitable businesses may pay less than presumed, while struggling businesses overpay. Most systems allow appeals with evidence, but burden of proof lies with taxpayers to demonstrate presumptions are incorrect.
Example Sentence
“Under Italy’s presumption taxation system for small businesses, our retail shop’s tax liability is calculated based on square footage rather than actual profit.”
Practical Scenario
A tax advisor explains to a new importer: “Argentina applies presumption taxation to import businesses under $2 million annual turnover. They presume your profit margin at 15% of import values regardless of actual margins. Your $1.5 million imports would incur tax on presumed $225,000 profit. If your actual margin is only 8% ($120,000), you’d overpay on $105,000 phantom profit. However, avoiding this requires full accounting compliance and annual audits – for most small importers, accepting presumption taxation is simpler despite slight overpayment.”
Production Lead Time
/prəˈdʌkʃən liːd taɪm/
The total time required from order placement to finished goods delivery, encompassing material procurement, manufacturing, quality control, and initial logistics
Note 1: Component Breakdown
Production lead time includes: order processing (1-3 days), material procurement (5-30 days), actual manufacturing (10-45 days depending on complexity), quality inspection (2-5 days), and factory-to-port transportation (3-7 days). Total typically ranges 30-90 days for Chinese manufacturing.
Note 2: Factors Affecting Duration
Lead time varies by: product complexity, material availability, factory capacity utilization, seasonal demand (Chinese New Year adds 20-30 days), customization requirements, quality standards, and payment terms (faster for advance payment versus L/C).
Note 3: Strategic Planning
Buyers must plan orders considering: production lead time plus shipping time (20-35 days ocean) plus customs clearance (2-7 days), with buffers for delays. Seasonal products require ordering 4-5 months pre-season; fashion goods need 90-120 days total pipeline time.
Example Sentence
“The factory quoted 45 days production lead time, meaning we must place our order by March 1st for May 15th delivery.”
Practical Scenario
A sourcing manager calculates: “Our Christmas inventory needs to hit stores by November 1st. Working backward: 30 days ocean shipping, 5 days customs clearance, 7 days distribution = delivery by September 20th required. Factory lead time is 60 days, so we must place orders by July 20th. Accounting for potential 10-day delays and 5-day payment processing, we should initiate orders by July 1st – giving us a 5-month procurement cycle.”
Put Option
/pʊt ˈɑːpʃən/
A financial derivative granting the holder the right, but not obligation, to sell an underlying asset at a predetermined price (strike price) before or on a specified expiration date
Note 1: Risk Management Function
Put options provide downside protection – if asset prices fall below strike price, holders can sell at the higher strike price, limiting losses. Importers use currency put options to protect against home currency appreciation; commodity buyers hedge against price declines.
Note 2: Cost-Benefit Analysis
Put options require premium payments (1-5% of notional value typically). If prices remain above strike price, options expire worthless and premiums are lost. However, premiums are small compared to potential losses they prevent – essentially insurance against adverse price movements.
Note 3: Trade Applications
Exporters receiving future foreign currency payments buy put options to lock in minimum exchange rates. Commodity traders use put options on oil, metals, or agricultural products. Combined with call options (collars), traders can create zero-cost hedges with defined price ranges.
Example Sentence
“We purchased EUR put options at strike price 1.10 USD/EUR to protect against Euro weakening on our €5 million receivable due in 90 days.”
Practical Scenario
A CFO implements hedging: “We’ll receive €10 million in 6 months from European sales, currently worth $11 million at 1.10 rate. I’m concerned Euro may weaken to 1.05 or below, costing us $500,000+. We purchased EUR put options at 1.08 strike for $80,000 premium (0.7%). If EUR falls to 1.05, we exercise options, selling €10M at 1.08 = $10.8M, limiting loss to $200,000 plus premium. If EUR stays strong, we let options expire and convert at market rate minus premium cost.”
Quantum Meruit
/ˈkwɑːntəm ˈmɛruɪt/
A legal principle meaning “as much as he has deserved,” allowing recovery of fair compensation for services rendered or goods supplied even without a formal contract
Note 1: When Applied
Quantum meruit applies when: contracts are void or unenforceable but work was performed, contracts don’t specify price but goods/services were accepted, one party prevents contract completion after partial performance, or implied contracts exist through parties’ conduct.
Note 2: Calculation of Fair Value
Courts determine quantum meruit based on: reasonable market value of services/goods, industry standard rates, time and effort expended, complexity and quality of work, and any partial payments already made. Expert testimony often establishes fair compensation amounts.
Note 3: Trade Disputes
Quantum meruit resolves disputes where: purchase orders are unsigned but goods delivered and accepted, email agreements lack price terms, rush orders proceed without written contracts, or scope changes occur mid-project. It prevents unjust enrichment where one party benefits from another’s work without compensation.
Example Sentence
“Although our purchase agreement was invalidated due to a technical error, we recovered payment under quantum meruit for the goods we supplied.”
Practical Scenario
A legal counsel advises on a dispute: “You supplied $200,000 in custom components to the buyer, who now claims the purchase order was unauthorized and refuses payment. While the PO may be invalid due to the signing authority issue, you can pursue quantum meruit recovery. We’ll demonstrate: (1) buyer requested the goods, (2) you delivered per specifications, (3) buyer accepted and used the components in their production, (4) fair market value of custom components is $200,000. Courts typically award full fair value in clear cases like this where the buyer benefited from and used your goods.”
Rate of Discount
/reɪt əv ˈdɪskaʊnt/
The interest rate or percentage charged by banks when discounting bills of exchange or promissory notes, providing immediate cash for instruments payable at future dates
Note 1: Calculation Components
Discount rates comprise: base rate (reflecting prime lending rate or LIBOR), credit risk premium (based on drawee creditworthiness), time factor (days until maturity), and bank’s service margin. Total rates typically range 3-12% annually depending on these factors.
Note 2: Versus Interest Rates
Discount rates differ from loan interest – discounting deducts interest upfront from face value, so proceeds received are less than face value. For a $100,000 draft at 6% for 90 days, discount is approximately $1,500, netting $98,500 immediately.
Note 3: Negotiation Factors
Lower discount rates are achieved through: strong buyer creditworthiness, established banking relationships, higher transaction volumes, L/C backing (versus open account drafts), and shorter maturity periods. Prime customers may receive rates 2-4% below standard rates.
Example Sentence
“The bank offered a 7% rate of discount for our 120-day draft, providing $965,000 immediately against the $1,000,000 face value.”
Practical Scenario
A finance manager negotiates: “We have three $500,000 drafts maturing in 60, 90, and 120 days. Bank A quoted 8% discount rate on all three; Bank B offers 6% for the 60-day draft, 7% for 90-day, and 8.5% for 120-day. Running the numbers: Bank A nets us $1.45M total; Bank B nets $1.465M – $15,000 better. Additionally, Bank B confirmed they’ll reduce rates by 1% once our monthly volume exceeds $2M, potentially saving another $20,000 annually.”
Recourse for Non-acceptance
/rɪˈkɔːrs fɔːr nɑːn əkˈsɛptəns/
Legal remedies available to the holder of a bill of exchange when the drawee refuses to accept the draft, allowing the holder to pursue prior endorsers or the drawer for payment
Note 1: Legal Process
When drafts are dishonored by non-acceptance, holders must: promptly notify all prior parties (drawer and endorsers), obtain formal protest certificate from notary public, and exercise recourse rights within specified timeframes (typically 3-7 days). Delays may forfeit recourse rights.
Note 2: Liability Chain
All endorsers and the drawer are secondarily liable if drawee refuses acceptance. Holder can pursue any or all liable parties. Once one party pays, they gain subrogation rights to pursue other liable parties. This chain provides security for negotiable instruments.
Note 3: Without Recourse Endorsement
Parties can endorse drafts “without recourse,” disclaiming liability for non-acceptance. Such endorsements reduce negotiability and typically require discounts. Banks rarely accept without-recourse endorsements as it increases their risk of non-payment.
Example Sentence
“When the buyer refused to accept our draft, we exercised recourse for non-acceptance against the endorsing bank who had guaranteed payment.”
Practical Scenario
A trade finance officer manages a crisis: “Our buyer in Brazil refused acceptance of a $750,000 draft, claiming quality issues with goods. We immediately: (1) obtained notarial protest certificate documenting non-acceptance, (2) notified the drawer (supplier) and two banks who endorsed the draft of dishonor within 48 hours, (3) initiated recourse proceedings against all liable parties. The second endorsing bank, wanting to preserve their reputation, paid the full amount within 5 days while pursuing the Brazilian buyer separately for reimbursement.”
Rejection Slip
/rɪˈdʒɛkʃən slɪp/
A formal document issued by banks listing discrepancies found in letter of credit documents that prevent acceptance and payment
Note 1: Common Discrepancies
Typical rejection slip items include: late presentation beyond L/C expiry, description mismatches between documents, missing required documents, incorrect amounts or quantities, improper endorsements, expired insurance coverage, or inconsistent shipping dates across documents.
Note 2: Remedies
Upon receiving rejection slips, beneficiaries can: correct documents and re-present if time permits, request applicant waive discrepancies, negotiate discount for accepting discrepant documents, or pursue collection on a non-L/C basis. Each option has different timing and risk implications.
Note 3: Prevention
Reduce rejection slips through: pre-shipment L/C analysis identifying potential issues, document checklist systems, professional document preparation, bank pre-screening services, and buffer time before expiry allowing corrections. First-time-right document presentation should exceed 90%.
Example Sentence
“We received a rejection slip citing three discrepancies: invoice dated after B/L, description said ‘steel pipes’ instead of ‘carbon steel pipes,’ and one document missing.”
Practical Scenario
An export coordinator handles a rejection: “The bank issued a rejection slip on our $400,000 L/C documents citing: (1) commercial invoice shows ‘FOB Shanghai’ but L/C requires ‘CIF Hamburg,’ (2) B/L dated June 15 but L/C latest shipment date was June 10, (3) insurance certificate missing. Options: We can’t fix the B/L date – must request buyer waive this discrepancy. We’ll reissue invoice with correct Incoterm. We have the insurance certificate – it was simply not included. Correcting 2 of 3 discrepancies and requesting waiver on the date may allow payment, but will delay receipt by 7-10 days.”
Sale on Account
/seɪl ɑːn əˈkaʊnt/
A transaction where goods are sold on credit with payment due at a future date, recorded as accounts receivable, without immediate cash exchange or documentary credit
Note 1: Open Account Terms
Sale on account typically operates on net 30, 60, or 90-day payment terms. Sellers bear full credit risk – if buyers default or delay payment, sellers have limited recourse. This trust-based approach suits established business relationships with creditworthy buyers.
Note 2: Risk Management
Mitigate open account risks through: credit insurance, credit limit monitoring, regular account reviews, requiring partial advances for large orders, factoring receivables, or reserving title until full payment. Credit checks and payment history analysis are essential before extending terms.
Note 3: International Considerations
Cross-border sales on account face additional risks: currency fluctuations, foreign bankruptcy laws, enforcement difficulties, and country risk. Many exporters limit open account sales to domestic customers or require credit insurance for international accounts.
Example Sentence
“We’ve been selling on account to this customer for five years with consistent 30-day payments, so we’re comfortable extending $100,000 credit.”
Practical Scenario
A credit manager reviews a request: “Large European buyer wants to purchase $500,000 monthly on 60-day account terms. Credit check shows strong financials, but this is our first international open account customer. Recommendation: (1) Start with $100,000 credit limit, increasing gradually based on payment performance, (2) Require standby L/C backing for amounts exceeding $300,000, (3) Purchase credit insurance covering 90% of exposure for $12,000 annually, (4) Implement weekly aging report monitoring. This balances business development with prudent risk management.”
Sight Bill
/saɪt bɪl/
A bill of exchange or draft payable immediately upon presentation to the drawee, requiring no acceptance period or deferred payment date
Note 1: Payment Mechanics
Sight bills demand immediate payment when presented. In L/C transactions, presenting banks examine documents and, if compliant, obtain payment from issuing banks within 3-5 banking days. This contrasts with usance drafts allowing 30, 60, or 90-day payment delays.
Note 2: Advantages to Sellers
Sight bills provide fastest payment, eliminate credit risk during acceptance period, avoid discounting costs, and simplify administration. Sellers receive funds shortly after shipment, improving cash flow significantly compared to deferred payment terms.
Note 3: Buyer Considerations
Buyers prefer usance bills for cash flow management, but sight bills are common when: sellers have strong negotiating position, goods are commodities traded on cash terms, buyers have ample liquidity, or competitive pricing compensates for immediate payment requirements.
Example Sentence
“Our L/C requires a sight bill payable upon presentation of compliant shipping documents to the negotiating bank.”
Practical Scenario
A sales director negotiates terms: “The buyer requested 90-day usance terms, but our company policy for new customers under $5M annual volume is sight payment only. I offered a compromise: sight L/C for the first three shipments ($1.2M total), demonstrating payment reliability. After successful completion, we’ll consider 60-day usance terms. To compensate for immediate payment burden, we’ve reduced unit price by 2% – effectively sharing the financing cost while protecting our cash flow during the relationship-building phase.”
Skeleton Case
/ˈskɛlɪtən keɪs/
A minimal or incomplete customs declaration filed to meet entry deadlines, with full documentation and detailed information to be submitted later
Note 1: Purpose and Use
Skeleton cases allow cargo release when complete documentation isn’t immediately available but entry deadlines are approaching. Importers file basic information (shipper, consignee, value estimates) to clear customs, then submit detailed entries within specified periods (typically 10-30 days).
Note 2: Requirements
Most customs authorities require: estimated duty deposits, bonds or guarantees covering potential underpayment, commitment to complete full entries by deadlines, and valid reasons for incomplete documentation. Repeated skeleton entries may trigger audits or lose approval.
Note 3: Risks
Skeleton case risks include: deposit amounts exceeding actual duties (cash flow impact), penalties if full entries miss deadlines, classification disputes when final details differ from estimates, and potential examinations if patterns suggest avoidance of proper declarations.
Example Sentence
“We filed a skeleton case to clear the urgent shipment, depositing estimated duties while our supplier completes the commercial invoice documentation.”
Practical Scenario
A customs broker advises: “Your container arrives tomorrow but the supplier hasn’t sent final invoices – production quantities changed and prices adjusted. If we don’t file entry, demurrage costs $150/day. I recommend filing skeleton case with conservative duty deposit ($45,000 estimated versus likely $38,000 actual). This releases cargo immediately. Supplier has 15 days to provide final documents for complete entry. If duties are $38,000, customs refunds $7,000 within 30 days. Cost: temporary $7,000 cash outflow versus $4,500 demurrage over a 30-day documentation delay.”