UNIT– IV: Export Procedure and Documentation: Export procedure – Registration

Procedure – stages of Shipment and its procedure– Export quotations – Production and
Clearance of Goods for Exports – Shipping & Transportation – Insurance – Negotiation of
Documents –– Bills of Exchange: Letter of credit

Introduction - Export Procedure and Documentation

India ranks 19th in terms of overall export of merchandize and 12th in terms
of overall import of merchandize when compared to other countries. With more
trade liberalization deals to be signed by the pro-business Indian Government,
there is plenty of opportunity for establishing a successful import or export
business. To undertake an import or export business, the Entrepreneur must have a
strong understanding of all documentation pertaining to import or export
transactions. In this article, we cover basic export procedure and import procedure
in India along with the necessary documentation.

Export procedure

Export procedure consists of several commercial and regulatory formalities, which an

exporter is required to complete during the course of export trade transactions. These formalities

are complex and time-consuming and involve considerable documentation. The involvement of

two or more nations in the international trade transactions makes things more complex.

Hence, exporter is not only required to possess adequate knowledge of the procedures

and formalities of his own country but also of the importing country. Last but not least, he should

also ensure that all required documents, whether commercial or regulatory, are prepared and filed

with the appropriate authorities in the prescribed format on time.

An export procedure can be studied under the following three heads:

(a) Pre-Shipment Stage.

(b) Shipment Stage.

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(c) Post-Shipment Stage.
Export Documentation and It’s Types (With Specimens)
The trade between two nations involves significant documentation process. In domestic
trade, an organization has to fulfill only the requirements of taxation department of the own
country and make a simple invoice against the customers. However, in case of international
trade, exporters and importers have to submit a number of documents to different institutions.
These institutions are as follows:
a. Importing organization that has placed order and exporting organization that is selling the
goods
b. Taxation, custom control, and exchange control authorities of both the countries
c. Port authorities for loading and unloading of goods
d. Shipping and warehousing authorities for transporting and storing goods
e. Inspection agencies that inspect and verify the products
f. Banks of exporting and importing countries if involved
Export documentation plays a vital role in the flow and movement of goods and services in
international markets. This documentation involves heavy and cumbersome paper work for
exporting organizations.
There are various outsourcing agencies/ experts that prepare these documents on behalf
of organizations and charge fee for it. Exporters have to understand the importance of each and
every document. If they miss any document, the contract may be cancelled.
The discussion of these documents is as follows:
(a) Regulatory Documents:
Refers to the pre-shipment documents prescribed by the exporting country. The compliance
of these documents is mandatory for an export contract.
The regulatory documents include:
i. Shipping bill
ii. Export application prescribed by port authorities
iii. Insurance payment certificate
iv. Excise gate pass for clearance of goods

(b) Commercial Documents:

Refer to those documents that are important for transferring the ownership from the exporter
to the importer. These documents are necessary to meet the rules of the export trade.The
documents include the following:
i. Bills of exchange
ii. Letter of credit
iii. Marine insurance policy
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Registration procedure for Exports
An exporter is required to register his organisation with a number of institutions and authorities,
which directly or indirectly help him in the smooth conduct of export trade. Some of the authorities
with which exporter has to register his organisation are:

(a) Registration of Organisation: Exporters have to register the types of organisation selected by

them under the appropriate Act of the country for undertaking their export operations, viz.,:
A joint stock company under the Companies Act, 1956.

A partnership firm under the Indian Partnership Act, 1932.

A sole trader should seek permission from the local authorities, as required.

 (b) Opening Bank Account: Exporters are required to open a current account in the name of their
firms or companies with a commercial bank which is authorised by the Reserve Bank of India
(RBI) to deal in foreign currency transactions. All financial transactions of the exporter
organisation are routed through this account. Such bank also serves as a source of pre-shipment and
post-shipment finance for the exporters.

(c) Obtaining Importer-Exporter Code Number (IEC No.): Prior to .1.199711i was obligatory

for every exporter to obtain Exporter's Code Number (CNX) number from the RBI. However, since
then, the CNX number has been replaced by Importer Exporter Code (IEC) number issued by the
Direct General for Foreign Trade (DGFT). The application form for obtaining IEC number should
be accompanied by fee of Rs. 1000.
(d) Obtaining Permanent Account Number (PAN): Export income is subject to a number of
exemptions and deductions under different sections of the Income Tax Act. For claiming these
exemptions and deductions, exporters are required to register their organisation with the Income
Tax Authorities and obtain the Permanent Account Number (PAN). PAN is also necessary for
obtaining IEC number.
(e) Registration with GST: Goods manufactured for export purpose as well as those purchased
from local market for export purpose are completely exempted from Value Added Tax and Central
Sales Tax, provided exporter or his firm is registered with the Value Added Tax authority of the
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state concerned and obtains exemption as per the procedure laid down in the concerned Acts. GST
registration is required to be completed by every exporter with effect from appointed date fixed by
government of India by 2017.
(f) Registration with Export Promotion Council (EPC): It is obligatory for every exporter to
register with appropriate Export Promotion Council (EPC) and obtain the Registration-cum-
Membership Certificate' (RCMC). At present, there are 21 EPCs dealing with various
commodities. The benefits extended to exporters under the new Foreign Trade Policy 2009-2014
are extended only to the registered exporters having valid RCMC.
(g) Registration with Export Credit and Guarantee Corporation of India (ECGC): Exporters
are exposed to commercial as well as political risks in the international market. Therefore, in order
to protect themselves against such risks it is necessary for exporters to get themselves registered
with the ECGC. ECGC also helps exporters in obtaining financial assistance from commercial
banks and other financial institutions.
(h) Registration with other Authorities: Exporters are also required to register with a number of
other authorities and institutions such as:
Federation of Indian Export Organisation (FIFO),

Indian Trade Promotion Organisation (ITPO),

Chambers of Commerce (COC),

Productivity Councils, etc.

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 Stages of Shipment and its procedure

To being exporting or importing goods from India, the business or individual

must obtain an Import Export Code or IE Code from the Directorate General of
Foreign Trade. IE Code can be obtained by the business after obtaining PAN and
opening a bank account. India Filings can help you obtain IE Code.

Commercial Invoice

Commercial invoice is issued by the seller to the buyer containing the terms
of the transaction like date of transaction, seller details, buyer details, value,
shipping terms and more. Customs duty is levied on the shipment usually based on
the commercial invoice raised by the seller.

Sample Commercial Invoice

 Air Waybills

An airway bill is a proof of shipment of goods by air. Air waybills serve as a

proof of receipt of goods for shipment by the air cargo agent, an invoice for the air
shipment, a certificate of insurance and a guide to the air cargo agent for handling,
dispatch and delivery of the consignment. A typical airway bill contains details
about the shipper and the consignee, the departure airport and destination airport,
description of the goods, sign and seal of the carrier.

Sample Air Waybill

 Bill of Lading

Bill of Lading is provided by shipping agency for goods shipped by them.

Bill of lading usually contains information pertaining to the shipper, consignee,
carrying vessel, ports of loading and discharge, place of receipt and deliver, mode
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of payment and name of the carrier.

Sample Bill of Lading

 Bill of Exchange

Bill of exchange is used when an importer agrees to pay the exporter in future
on a date on or before that is mutually agreed upon. Bill of exchange is an
important written document in wholesale trade wherein large amounts of money is
involved. Bill of exchange can be classified as bill of exchange after date and bill
of exchange after sight. Bill of exchange after date is when the due date for
payment is counted from the date of drawing. Bill of exchange after sight is when
the due date for payment is counted from the date of acceptance of the bill.

Certificate of Origin

Certificate of origin is usually requested by the Customs Authority while

clearing Customs. Certificate of Origin is used to establish the origin of the product
and is issued by the Chamber of Commerce of the Exporter’s country. Certificate
of origin usually contains the name and address of the exporter, details of the
goods, package number or shipping marks and quantity, as applicable.

Sample Certificate of Origin

 Packing List

Packing list contains detailed information about the goods being shipped,
quantity, weight and packing specifications. Packing list must contain description
of the goods and have details regarding the shipping marks.

Sample Export Packing List

 Letter of Credit

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 Letter of Credit is an arrangement wherein a Bank on the request of it customer
agrees to make payment to a beneficiary on receipt of documents from beneficiary
as per the terms stipulated in the Letter of Credit. Letter of Credit or LC is used
extensively in international and domestic trade transactions. Click here to know
more about Letter of Credit (LC).

Production and clearance of goods for exports

In reality, an export exercise is concluded successfully only after the

exporter has been able to deliver the consignment in accordance with the export
contract and receive payment for the goods.

This involves practice of prescribed procedure to be performed (Branch

2000). The fact is that one does not need only to be very well informed about
his/her export company, his/her products, his/her suppliers, his/her export chain,
his/her market, the world market, but one also needs to know the export rules and
terms, the different cultures that one targets and the final customers’ needs.

Then comes fulfilling these needs by the most competitive way and by
adding value to one’s services. This is so because all sell the same products with
minor changes , but what makes the difference is the method and the value added
services one provides to the ultimate consumers. Simply speaking, that making an
export company is an easy process, but making d successful and long lasting
export company is a very difficult task

Therefore, it seems pertinent now to make you learn the various steps’
involved in the processing of an export order. These are listed as follows:

Having an Export Order:

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 Processing of an export order starts with the receipt of an export order. An
export order, simply stated, means that there should be an agreement in the form of
a document, between the exporter and importer before the exporter actually starts
producing or procuring goods for shipment. Generally an export order may take the
form of proforma invoice or purchase order or letter of credit. You have already
learnt these just in the preceding section.

Examination and Confirmation of Order:

Having received an export order, the exporter should examine it with

reference to the terms and conditions of the contract. In fact, this is the most crucial
stage as all subsequent actions and reactions depend on the terms and conditions of
the export order.

The examination of an export order, therefore, includes items like product

description, terms of payment, terms of shipment, inspection and insurance
requirement, documents realising payment and the last date of negotiation of
documents with the bank. Having being satisfied with these, the export order is
confirmed by the exporter.

Manufacturing or Procuring Goods:

The Reserve Bank of India (RBI), under the export credit (interest subsidy)
scheme, extends pre-shipment credit to exporter to finance working capital needs
for purchase of raw materials, processing them and converting them into finished
goods for the purpose of exports. The exporter approaches the bank on the basis of
laid down procedures for the pre-shipment credit. Having received credit, the
exporter starts to manufacture / procure and pack the goods for shipment overseas.

Clearance from Central Excise:

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 As soon as goods have been manufactured/ procured, the process for
obtaining clearance from central excise duty starts. The Central Excise and Sale
Act of India and the related rules provide the refund of excise duty paid. There are
two alternative schemes whereby 100 per cent rebate on duty is given to export
products on the submission of the proof of shipment.

The first scheme is to make payment of the excise duty at the time of
removing the export consignment from the factory and file a claim for rebate of
duty after exportation of goods. The second scheme is to remove goods from
factory/warehouse without payment but under an appropriate bond with the excise
authorities. The exporter needs to apply on a form known as AR4 or AR4A to the
Central Excise Range Superintendent for obtaining excise clearance.

Form A is filed when goods are to be cleared after examination by the excise
inspector. In all other cases, form AR4A is filed.
Pre-Shipment Inspection:

There are number of-goods whose export requires quality certification as per
the Government of India’s notification. Consequently, the Indian custom
authorities will require the submission of an inspection certificate issued by the
competent and designated authority before permitting the shipment of goods takes
place.

Inspection of export goods may be conducted under:

Consignment-wise Inspection
In-process Quality Control, and
Self-Certification.

The Inspection Certificate is issued in triplicate. The original copy is for the

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customs verification. The second copy of the certificate is sent to the importer and
the third copy remains with the exporter for his reference purpose.

Appointment of Clearing and Forwarding Agents:

On completion of the process of obtaining the Inspection Certificate from

the custom agencies, the exporter appoints clearing and forwarding agents who
performa number of functions on behalf of the exporter.

The main functions performed by these agents include packing, marking and
labeling of consignment, arrangement for transport to the port arrangement for
shipment overseas, customs clearance of cargo, procurement of transport and other
documents.

In order to facilitate the exporter in discharging his duties, the following

documents are submitted to the agent:
Commercial invoice in 8-10 copies
Customs Declaration Form in triplicate
Packing list
Letter of Credit (original)
Inspection Certificate (original)
G.R. Form (in original and duplicate)
AR4/ AR4A (in original and duplicate)
GP-l/GP-2 (original)
Railway Receipt/Lorry Way Bill, as the case may be

Goods to Port of Shipment:

After the excise clearance and pre-shipment inspection formalities are

completed, the goods to be exported are packed, marked and labeled. Proper
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marking, labeling and packing help quick and safe transportation of goods. The
export department takes steps to reserve space on the ship through which goods are
to be sent to the importer.

The shipping space can be reserved either through the clearing and
forwarding agent or freight broker who works on behalf of the shipping company
or directly from the shipping company. Once the space is reserved, the shipping
company issues a document known as Shipping Order. This order serves as a proof
of space reservation.

If goods are sent through a road carrier to the port, no specific formality is
involved. In case, the goods are sent by rail to the port of shipment, allotment of
wagon needs to be obtained from the Railway Board.

The following documents are submitted to the booking railway yard/station:

Forwarding Note (A Railway Document)
Shipping Order
Wagon Registration Fee Receipt

Once wagons have been allotted, goods are loaded, for which railways will
issue Railway Receipt (RR). Then, this receipt and other documents are sent to the
clearing and forwarding agent at the port town. At the same time, the
production/export department takes insurance policy in duplicate for risk coverage
(internal as well as overseas) for the goods to be exported.

Port Formalities and Customs Clearance:

Having received the documents from the export department, the clearing and
forwarding agent takes delivery of the cargo from the railway station or the road
transport company and stores it in the warehouse. He also obtains customs

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clearance and permission from the port authorities to bring the cargo into the
shipment shed.

The custom department grants permission for export at the office of the
customs and physical verification of goods in the shipment shed. The clearance for
export is given on the Shipping Bill.

The clearing and forwarding agent is required to submit the following

documents with the Customs House for obtaining customs clearance and
permission:

Shipping Bill
Contract Form
Letter of Credit, if applicable
Commercial Invoice
GR Form
Inspection Certificate
AR4/AR4A Form
Packing List, if needed

After receiving documents from the export department, the clearing and
forwarding agent presents the Port Trust Document to the Shed Superintendent of
the port. He obtains carting order bringing the cargo to the transit shed for physical
examination by the Dock Appraiser.

The Dock Appraiser is presented the following documents to facilitate him

in physical examination of export goods:

(i) Shipping Bill

(ii) Commercial Invoice
(iii) Packing List

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 (iv) AR4/ AR4A Form and Gate Pass
(v) GR Form (duplicate)
(vi) Inspection Certificate (original)

The Dock Appraiser, after making examination, makes ‘Let Export’

endorsement on the duplicate copy of the Shipping Bill and hands over it to the
Forwarding Agent. All these documents are presented to the Preventive Officer
who puts an endorsement ‘Let Ship’ on the duplicate copy of the Shipping Bill.
The preventive officer supervises the loading of cargo on board the vessel.

After the goods are loaded on board the vessel, the captain of the ship issues
a receipt known as ‘Mate’s Receipt’ to the Shed Superintendent of the port
concern. The forwarding, agent after paying port charges, takes the delivery of the

‘Mate Receipt’. He submits to Shipping Company and requests it to issue the Bill of
Lading.

Dispatch of Documents by Forwarding Agent to the Exporter:

After obtaining the Bill of Lading from the Shipping Company, the clearing
and forwarding agent dispatches all the documents to his / her exporter.

These documents include:

2.8 Commercial Invoice (attested by the customs)

2.9 Export Promotion Copy
2.10 Drawback Copy
2.11 Clean on Board Bill of Lading
2.12 Letter of Credit
2.13 AR4/ AR4A and Gate Pass
2.14 GR Form (in duplicate)

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 Certifica te of Origin:

On receipt of above documents from the forwarding agent, the exporter now
applies to the Chamber of Commerce for a Certificate of Origin and obtains it. If
the goods are exported to countries offering GSP concessions, the exporter needs
to procure the GSP Certificate of Origin from the concerned authority like Export
Inspection Agency.

Dispatch of Shipment Advice to the Importer:

At last, the exporter sends ‘Shipment Advice’ to the importer intimating the
date of shipment of the consignment by a named vessel and its expected time of
arrival at the destination port of the importer.

The following documents are also sent to the importer to facilitate him
for taking delivery of the’ consignment:
Bill of Lading (non-negotiable copy)
Commercial Invoice
Packing List
Customs Invoice

Submission of Documents to Bank:

At the end of the process, the exporter presents the following documents to
his bank for realisation of his amount due to the importer:

2.11 Commercial Invoice’

2.12 Certificate of Origin
2.13 Packing List

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 2.14 Letter of Credit
2.15 Marine Insurance Policy
2.16 GR Form
2.17 Bill of Lading
2.18 Bill of Exchange
2.19 Bank Certification
2.20 Commercial Invoice

Claiming Export Incentives:

On completion of the processing of an export order at the three levels of

shipment i.e., pre-shipment, shipment and post-shipment, the exporter claims for
export incentives admissible to him / her.

iv. Bills of lading

v. Shipping instructions
vi. Shipping order
vii. Inspection documents
viii. Certificate of origin of goods
C) Export Assistance Documents:
Involve those documents that are required for getting government assistance, such as
subsidies. It includes documents, such as export-import contract and certificate of quality
control.
D) Documents prescribed by importer’s country:
Include pre-inspection, quality approval, and child labor norms related documents. The
importer insists the exporter to submit these documents to fulfill the laws and regulations of the
importer’s country. The export documents are necessary from the stage when the exporter
receives the order till the final stage when he/she gets the payment from the importer. These
documents help in the regulation of trade and facilitation of export operation.
.

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 Negotiation of documents
In order to receive payment, the beneficiary must present documentation of completion of
their part in the transaction to the issuing bank. The documents that the issuing bank will accept
are specified in the letter of credit, but may often include:
 Bills of exchange
 Invoices
Government documents, such as licenses, certificates of origin, inspection certificates,
embassy legalizations, and phytosanitary certificates Shipping and transport documents, such as
bills of lading and airway bills Insurance policies or certificates, except cover notes Risks in

Letter of credit transactions are not without risks. The risks inherent in these types of transactions
include:
Fraud risk, in which the payment is obtained through the use of falsified or forged
documents for worthless or nonexistent merchandise
Regulatory risk, in which government action may prevent completion of the
transaction
Legal risk, in which legal action prevents completion of the transaction
Force majeure risk, in which completion of the transaction is prevented by an
external force, such as war or a natural disaster
Failure of the issuing or collecting bank
Or insolvency of the buyer or beneficiary

Meaning of Bill of Exchange

According to the Negotiable Instruments Act 1881, ‘a bill of exchange is defined as an instrument
in writing containing an unconditional order, signed by the maker, directing a certain person to pay
a certain sum of money only to, or to the order of a certain person or to the bearer of the
instrument.’

Features of Bill of Exchange

 It is important to have a bill of exchange in writing

 It must contain a confirm order to make a payment and not just the request
 The order should not have any condition
 The bill of exchange amount should be definite
 Fixed date for the amount to be paid
 The bill must be signed by both the drawee and the drawer
 The amount stated on the bill should be paid on-demand or on the expiry of a fixed time
 The amount is paid to the beneficiary of the bill, specific person, or against a definite order

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 Types of Bill of Exchange

 Documentary Bill- In this, the bill of exchange is supported by the relevant documents that
confirm the genuineness of sale or transaction that took place between the seller and buyer.
 Demand Bill- This bill is payable when it demanded. The bill does not have a fixed date of
payment, therefore, the bill has to be cleared whenever presented.
 Usance Bill- It is a time-bound bill which means the payment has to be made within the
given time period and time.
 Inland Bill- An Inland bill is payable only in one country and not in any other foreign
country. This bill is opposite to foreign bill.
 Clean Bill- This bill does not have any proof of a document, so the interest is
comparatively higher than the other bills.
 Foreign Bill- A bill that can be paid outside India is termed as a foreign bill. Two examples
of a foreign bill are an export bill and import bill.
 Accommodation Bill- A bill that is sponsored, drawn, accepted without any condition is
known as an accommodation bill.
 Trade Bill- This kind of bill is specially related only to trade.
 Supply Bill- The bill that is withdrawn by the supplier or contractor from the government
department is known as the supply bill.

Advantages of Bill of Exchange

 Legal Document- It is a legal document, and if the drawee fails to make the payment it will
be easier for the drawer to recover the amount legally.
 Discounting Facility- The bill bearer has to wait till the due date of the bill to receive the
payment and it from the bank before its due date.
 Endorsement Possible- This bill of exchange can be exchanged from one individual to
another for the adjustment of the debt.

Parties of Bill of Exchange

A bill of exchange has three parties:
(1) Drawer:

 The drawer is the maker of a bill of exchange.

 The bill is signed by Drawer.
 A creditor who is entitled to receive payment from the debtor can draw a bill of exchange.
(2) Drawee:

 Drawee is the person upon whom the bill of exchange is drawn.

 Drawee is the debtor who has to pay the money to the drawer.
 He is also known as ‘Acceptor’.
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(3) Payee:

 The payee is the person to whom payment has to be made.

 The payee may be the drawer himself or a third party.

Importance of Promissory note in Bill of Exchange

According to the Negotiable Instruments Act 1881, the meaning of promissory note is ‘an
instrument in writing (not being a banknote or a currency note), containing an unconditional
undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain
person, or to the bearer of the instrument. However, according to the Reserve Bank of India Act, a
promissory note payable to bearer is illegal. Therefore, a promissory note cannot be made payable
to the bearer.’

What is Promissory Note

The promissory note is defined as an instrument in writing (not being a banknote or a currency
note), containing an unconditional undertaking signed by the maker, to pay a certain sum of money
only to or to the order of a certain person, or to the bearer of the instrument.

Parties to a Promissory Note

There Are Two Parties to a Promissory Note:
(1) Maker OR Drawer:

 Maker is the person who makes or draws the promissory note.

 Who promises to pay a certain sum as specified in the promissory note.
 He is also called the ‘Promisor’.
(2) Payee:
The payee is the person in whose favour the promissory note is drawn.
.

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 Letter of Credit
When you hear the phrase ‘letter of credit,’ it might be natural to think it refers to a
document verifying that you are creditworthy, but that isn’t the case. A letter of credit is a
document issued by a third party that guarantees payment for goods or services when the seller
provides acceptable documentation. Letters of credit are usually issued by banks or other
financial institutions, but some creditworthy financial services companies, like insurance
companies or mutual funds, might issue letters of credit under certain circumstances.
A letter of credit generally has three participants. First, there is the beneficiary, the person
or company who will be paid. Next, there is the buyer or applicant of the goods or services. This
is the one who needs the letter of credit. Finally, there is the issuing bank, the institution issuing
the letter of credit. In addition, the beneficiary may request payment to an advising bank, which
is a bank where the beneficiary is a client, rather than directly to the beneficiary. This might be
done, for example, if the advising bank financed the transaction for the beneficiary until payment
was received.
Letters of credit are most often used in international trade, where they are governed by
the Uniform Customs and Practice for Documentary Credits (or UCP), the rules of the
International Chamber of Commerce. However, they can be used in other situations, as we shall
see.
Types and Features of Letters of Credit
Most letters of credit are import/export letters of credit, which, as the name implies, are
letters of credit that are used in international trade. The same letter of credit would be termed an
import letter of credit by the importer and an export letter of credit by the exporter. In most
cases, the importer is the buyer and the exporter is the beneficiary.

There are also other types of letters of credit. The revocable letter of credit can be
changed at any time by either the buyer or the issuing bank with no notification to the
beneficiary. The most recent version of the UCP, UCP 600, did away with this form of letter of
credit for any transaction under their jurisdiction. Conversely, the irrevocable letter of credit only
allows change or cancellation of the letter of credit by the issuing bank after application by the
buyer and approval by the beneficiary. All letters of credit governed by the current UCP are
irrevocable letters of credit.
A confirmed letter of credit is one where a second bank agrees to pay the letter of credit
at the request of the issuing bank. While not usually required by law, an issuing bank might be
required by court order to only issue confirmed letters of credit if they are in receivership. As
you might guess, an unconfirmed letter of credit is guaranteed only by the issuing bank. This is
the most common form with regard to confirmation.
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 A letter of credit may also be a transferrable letter of credit. These are commonly used
when the beneficiary is simply an intermediary for the real supplier of the goods and services or
is one of a group of suppliers. It allows the named beneficiary to present its own documentation
but transfer all or part of the payment to the actual suppliers. As you might guess, an un-
transferrable letter of credit does not allow transfer of payments to third parties.
A letter of credit may also be at sight, which is payable as soon as the documentation has
been presented and verified, or payment may be deferred. Deferred letters of credit are also
called a usance letter of credit and may be put off until a certain time period has passed or the
buyer has had the opportunity to inspect or even sell the related goods.
A red clause letter of credit allows the beneficiary to receive partial payment before
shipping the products or performing the services. Originally, these terms were written in red ink,
hence the name. In practical use, issuing banks will rarely offer these terms unless the
beneficiary is very creditworthy or an advising bank agrees to refund the money if the shipment
is not made.
Finally, a back-to-back letter of credit is used in a trade involving an intermediary, such
as a trading house. It is actually made up of two letters of credit, one issued by the buyer’s bank
to the intermediary and the other issued by the intermediary’s bank to the seller

INSURANCE DOCUMENTS
There are various insurance documents used for different types of insurance, which are
essential for all classes of insurance business. The object of insurance documents is give to the
insurer full particulars of the risk against which insurance protection is desired. It also provides
evidence of contract into which the parties have entered.
1. Proposal Forms
The company’s printed proposal form is normally used for making an application for the
required insurance cover. The proposal form contains questions designed to elicit all material
information about the particular risk proposed for insurance. The number and nature of questions
vary according to the particular class of insurance covered. In Marine Cargo Insurance,
Insurance document is not the practice to use a proposal form, although sometimes it is usual to
obtain a questionnaire or a declaration form duly completed. Proposal forms are used for hull
insurance. In Fire Insurance, the practice varies among the companies, proposal forms are not
generally used for large industrial risks where inspection of the risk is arranged before
acceptance of the risk. Forms are used for simple risks. Proposal forms are used in respect of
risks which are normally declined but have to be accommodated to retain the goodwill of the
client. In Miscellaneous Insurance, proposal forms are invariably required and they incorporate a
declaration which extends the common law duty of good faith. Fire proposal forms may or may
not have the declarations. The following items may be considered as common to all proposal
forms.
 Proposer’s name in full
 Proposer’s address
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  Proposer’s profession, occupation or business
 Previous and present insurance
 Loss experience
 Sum insured
 Other Section’s – Signature, date, place etc.
2. Policy Forms
Policy forms, like proposal forms, vary within wide limits as between different classes of
insurance but they have certain features in common. The policy is a document which provides
evidence of the contact of insurance. This document has to be stamped in accordance with
provisions of the Indian Stamp Act 1899. Where the insurance is governed by a Tariff or a
Market agreement, the policy wording is prescribed therein itself and it is obligatory for insurers
to use these wordings. In fire and miscellaneous insurance, the policy form used is on a
scheduled basis i.e. all individual details relating to a particular insurance are grouped together in
a schedule. Generally speaking policies are divisible into certain well defined sections and these
are as follows:
 Recital Clause or Preamble
 Operative Clause
 Attestation Clause
 Conditions
 Schedule
3. Cover Note
A cover note is a document issued in advance of the policy. It is issued when the policy
cannot for some reason or the other, be issued straight away. Cover notes are issued when the
negotiations for insurance are in progress and it is necessary to provide cover on a provisional
basis or when the premises are being inspected for determining the actual rate applicable.
Pending the preparation of the policy, the cover note is issued as evidence of protection for a
temporary period of time and to prove that cover is in force. Here is a brief detail of cover.
In Marine Insurance, marine cover notes are normally issued when details required for the
issue of policy such as name of the steamer, number of packages or exact value etc are not
known. In Fire Insurance,, the operative clause of a fire cover note is issued in consideration of
the proposer named in the schedule having proposed the effect of an insurance against fire for the
period mentioned, on the usual terms and conditions of the company’s policy. In Motor Vehicle
Insurance, motor cover notes are to be issued in the form prescribed by the Motor

4. Certificate of Insurance
In motor insurance, in addition to the policy, a certificate of insurance is required by the
Motor Vehicle Act. 1988. This certificate provides evidence of insurance to the Police and
Registration authorities. It contains the essential features of the cover including the terms and
conditions. In Marine Insurance, certificate of insurance is issued to provide evidence of cover
on shipments insured under cargo open cover or floating policies.

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 5. Endorsements
It is the practice of insurers to issue policies is a standard form, covering certain perils and
excluding certain others. If it is intended, at the time of issuing the policy to modify the terms
and conditions of the policy, it is done by setting out the alteration ia a memorandum which is
attached to the policy and forms part of it. The memorandum is called an endorsement

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