CHAPTER EIGIFT

Introduction to International Payments

Btu Exporters and tmjporters have dlflérent Interests as regards

payment. impmters would rather pay after delivery (open account), but this
would expose
the exporter to the riak of non-payment..Cnnveiseiy, a powerful eqxxter map insist
1 on payment in advance, but thls would ezpoet the importer to the tlsk of non-

die exporter item non-pn rment, but .does not preelde an advance guarantee of

export czedtt trisuzance, which allows them to o8ñr compettdve credtt terms (such
as open
account}. . ........
L.

The payment term in an export contract is crucial. Given the difficulty and expense of
enforcing contracts abroad, control of the payment term may translate into control over a
commercial transaction. then an importer is able to obtain “open account" terms, it has
great latitude to object to late delivery or the non-conforming quality of the goods.

1) ft{ymenf in advance - This option is the safest for the exporter, but it is often
unavailable in competitive markets. A partial advance payment (e.g., 20-30a) may
be more acceptable to the importer and therefore more realistic, but it still leaves
the exporter exposed to risk on the balance. Despite the great risks to the importer
of payment bycash in advance, some importers find they have no choice. Importers
from developing markets may find it necessary to pay in advance in order to
obtain high- demand or luxury goods. myments in advance may be made against
the issuance of a bank guarantee issued by the exporter's bank.
2) Nyizrent backed by standby credit or bank guarantee - This option is sometimes
neglected by strong exporters. The exporter grants open account terms backed by a
standby credit or bank guarantee. If the importer fails to pay on the invoice date,
the exporter draws against the standby credit or guarantee. The advantage to the
exporter is that the documentation is not as explicated as with an ordinary
commercial L/C. The advantage to the importer lles in receiving open account
terms from the exporter; if payment Is made within agreed upon dates, use of the
standby credit or bank guarantee will never be triggered. The danger to the
importer is that the exporter could unfairly claim the standby credit or bank
guarantee, so this option is to he used only with highly trusted exporters.
 3) Documimtary credttor ‘DfG” also lmoum asa "letter ofcredlt", "comt erctal credit"
or ‘Z/C”9 — After cash in advance, this is usually considered the next safest method
for the exporter. However, because of its complex documentary nature, the
documentary credit can be relatively expensive in terms of banking fees.
Moreover, the exporter must have a rigorous document-preparation system in
place to avoid the rlsk or non- payment due to non-conforming documents betng
presented to the bank.
4) documettfzry collection - Not as safe as a letter of credit for the exporter but
significantly cheaper; the seller must be willing to take the risk that the importer
will not pay or accept the documents.
f) Open nccounr -The exporter delivers the goods, then waits for the agreed upon
credit period for payment (often expressed as "net 30", "net 60" or“net 90”, meaning
that the balance 1s payable in 30, 60 or 90 days). This is the least safe method for the
exporter, to be used when the importer is fully trusted and creditworthy. The
exporter should consider the need for protection with credit insurance.

b. Expotcradft insurance(or qzage ctsdlt insurances

"Export credit" insurance or "trade credit" insurance is one of the key security devices
employed by export firms. Export credit Insurance is often offered by governmental
entities (in the U.S., Oiimbank). Xt'hen an exporter can obtain insurance for sales to a
particular importer, the exporter 1s much more willing to offer credit terms.

The easiest way for the exporter to avoid exchange rate risk is to require payment in
its own currency. However, in competitive markets exporters must accept payment tn
foreign currencies, thereby exposing themselves to exchange rate fluctuations. The
various mechanisms for dealing with exchange and currency risk are summarized in the
last section of this chapter.

Factors are financial services companies that take on many of the financial and
accounting management processes related to international payments. Exporters may
wish to turn late accounts over to an international collection agent or factor (see Chapter
10 on Factoring and

Export payment mechanisms, such as the cumentary credit, are flexible systems with
several key uses:
1) Gleans of payment - There are simple ways for the Importer to effect payment,
such as by bank draft or wire transfer, but in an international transaction these alone
would leave either the exporter or importer entirely at risk (depending on whether
payment was made before or after receipt of the goods). In International trade,
bank cheques are uncommon. More common is to find payment effected when
the importer (or its bank) accepts or pays the exporter's den or bill of exchange.
Drafts or bills of exchange are simply payment devices (and when used alone are
referred to as clean

107
 Qaots8

bills). However, traders have found further protection by requiring the attachment
of additional documents to the bills of exchange; these bundles of documents are
then processed through banks: hence, documentary bills.
2) Scenery mechanism — Documentary credits provide security for each of the parties
involved. The exporter is guaranteed payment provided the shipping documents
are in order. The importer is protected against paying for non-shipment; and by
requiring the provision of a certificate of inspection, the importer can also have the
security that the goods shipped are of contract quality.

With documentary bilb, ihe exporter's goods (represented by the bill of lading or
other transport document) and the importer's payment (represented by the
importer's acceptance or payment of the bill of exchange) are exchanged through a
neutral third party, the bank. This removes the dan8er that either the exporter or
importer will unfairly end up with both goods and money. Documentary bills,
which are used in both documentary credit and documentary collection operations,
therefore represent a linkage of payment and security functions.

Note, in contrast, that standby credits and demand guarantees are meant to be
used primarily as security instruments rather than payment devices. Thus, if an
exporter agrees to grant the importer 90-days credit, backed by the importer's
standby credlt (or bank guarantee), the standby credit 1s not meant to be the
primary payment device. Rather, the exporter wlll submit invoices for payment
to the importer at the appropriate time. The exporter wlll seek recourse to the
standby credit only tf the importer should fail to pay. Security devices will be
considered in detail in Chapter 11.

Each of the international payment options has different risk—reduction and

documentary characteristics. Generally, the reduction of risk is purchased at the cost
of greater documentary complexity and higher banking fees or service costs. Parties
tend to choose the cheaper and simpler options when they have a great deal of
confidence in each other, or when one of the parties has such a strong bargaining
position that it is able to force the other to accept somewhat risky terms.
3) Finance devices - Finance, in contrast to payment, is related to the need to grant
credit to the exporter or importer. Exporters can use letters of credit as financing
devices for export operations, especially by using transferable or back-to-back
credits. Bills of exchange, either alone or in combination with documentary credit
or collection operations, can be used as sources of finance for both exporter and
importer. Commonly, importers would like to be granted a credit period (from 30
up to 180 days or more), so they can re-sell the goods before they have to pay the
exporter. Exporters may be willing to grant these terms provided the importer
(or the importer's bank) undertakes to pQ at the end of the credit period, as by
issulng a deferred payment letter of credit or “accepting” a term bili of exchange
(in a practice known as “accepted” or “avalized” brits). Exporters are able to
discount the accepted bills for ready payment. Discounting practices, such as
“forfaitlng”, are covered, along with factoring and other short-term finance devices,
in Chapter 10.
8.2 PaymeN methods in practiœ
æ Payment on ojæn account
With open account payments the exporter ships the goods to the buyer and then
transmits an invoice and other shipping documents; i.e., the importer“buys now, pays
later”. These are somedmes called sales “on credit”, because the seller extends credit
without documentary secuñty for the buyer's indebtedness. For the Importer, of course,
open account terms are quite advantageous, as there 1s no need to pay for the goods
until they have been received and inspected. An importer may be able to sell the goods
and use the proceeds to pay the exponer's commercial invoice when it arrives.

Open account sales are common in domestic sales, but less so in international
transactions because they substantially increase the risk for the seller. An export seller
should only agree to open account terms if he has absolute confidence in the Import
buyer, as well as in the stability of the buyer's country and its import regulations. An
additional source of security is a stable market in the particular goods, because In
unstable markets a sudden drop ln prlces will often motivate importers to try to escape
thetr contracts.

Despite the risks, open account trading at the internatlonal level has significantly
increased. In the past, major barriers, such as a lack of transparency and apprehension
about cross- border exposure, limited international open account uade. Advances in
technology and increased financial knowledge are diminishing these concerns, as both
buyers and sellers recognize the benefits, such as reducing costs and improving
efficiencies through cross- border open account trading.

Sellers on open account are well-advised to include “retention of title” clauses in their
contracts. Such a clause allows the seller to reclaim the goods sold, or the proceeds from
the goods, in the event the importer becomes insolvent before paying for the goods.

Cth payment in advance the seller takes no risk whatsoever. Conversely, the importer is
at serious risk and should never consider payment in advance unless full information on
the reputation of the seller is available. If advance cash payments are made at all, they are
most commonly only partial payments. Full payment in advance does occur, however, and
is most common when the exporter's products are in extremely high demand and the
importer or importer's country are not a priority for the exporter.

A variation on cash in advance is for an advance payment to be made via some form of
documentary instrument, such as under a “id clause” letter of credit.

Many exporters fail to consider that open account payment backed by a standby credit
or demand guarantee can be as secure as cash in advance (and even more secure than
partial cash in advance). Although the exporter grants the importer credit and expects
payment by bank transfer or other similar means upon presentation of commercial
invoices, the standby credit or demand guarantee is a very desirable payment security. If
the importer does not pay the invoice, the exporter, under the standby credit or guarantee,
can easily claim the amount of the invoice. The danger here, of course, is for the
importer. An unscrupulous exporter
109
could make an unfair or fraudulent claim under the standby credit or bank guarantee.
The ICC Banking Commission has endorsed and approved rules specifically designed
for standbys and bank guarantees (see Chapter 9).

Milecash inadvancerepresents the ideal option for theexporter, andopenaccount

payments represent the ideal for the Importer, the next two payment mechanisms are
compromises with benefits for f›oth parties: the documentary collection and the
documentary credit.

The documentary collection is different from the clean collectlon. A clean collection is
essentially an open account payment made via a bill of exchange. The exporter ships
the goods and then sends the importer a bill of exchange via the importer's bank. A
documentary collection, on the other hand, allows the exporter to retain control of the
goods until it has received payment (or obtained an assurance of receiving payment).
Generally the exporter ships the goods and then assembles the relevant commemlal
documents, such as the invoice and the blll of lading, then turns them over, along with a
draft, to a bank acting as an agent for the exporter. The bank wiil only release the bill of
lading to the importer if the importer pays against the draft or accepts the obligation to do
so at a future time. There are two possibilities:
1) D/P — "Documents Against Payment" (or "Cash against documents’9 - The importer
pays the draft in order to receive the bill of lading (the document that enables the
importer to obtain delivery of the goods); hence, this form of collection is
referred to by banks alternatively as “cash against documents", "documents against
payment", "D/P" or "sight D/P".
2) D/A — "Documents against acceptance" - Here, the importer accepts the draft in
order to receive the bill of lading. By accepting the draft, the importer
acknowledges an unconditional legal obligation to pay according to the terms of
the draft.

The exporter's instructions to present a drak for acceptance or payment will be

transmitted through a series of banks. Usually, this will involve at least the exporter's bank
(known as țhe remltfing bank) and a bank in the importer's country (known as the
collecting or presenting hank, because it presents the relevantdocumentsforcollectiontothe
drawee). This somewhat
long information chain makes it crucial that the exporter's initial instructions be precise I
and complete. Thus, the process begins when the exporter filis out a collection instruction I
(abo called a lodgement form), in which the exporter indicates the instructions the banks
are to follow On the basis of this information, the remitting bank prepares its collection
instruction, which will accompany the documentary collection when it is transmitted to
the collecting or presenting bank. The banklng practice relating to collection
arrangements is standardized in ICC's Uniform Rules for Collectlons (ICC Publication
522).

The advantages of documentary collections Mr the exporter are that they are relatively
easy and inexpensive, and that control over the transport documents is maintained
until the exporter receives assurance of payment. The advantage for the importer is that
there is no obligation to pay before having had an opportunity to lnspect the documents
and, in some cases (as by an examination in a bonded warehouse), the goods
themselves.

The disadvantages for the exporter are that documentary collections expose the seller
110
to several risks: the risk that the importer will not accept the goods shipped, the credit
risk of the importer, the political risk of the importer's country and the risk that the
shipment may fail to clear customs. Therefore, the prudent exporter will have obtained a
credit report on

111
the Importer as well as an evaluation of importer's country risk. Another disadvantage
for the exporter is that a collection can be a relatively slow process. However, the
exponer's bank may be wilting to provide finance to cover the period during which the
exporter is waiting for the funds to clear.

Under a D/P collection, the Importer only takes the risk that the goocIs shipped may
not be as indicated on the invoice and bill of lading. The banks assume no risks for
documentary collections (other than that oftheir own negligence in following instructions).
This is one reason collections generally are sip ficanfiy cheaper, in terms of bank fees, than
documentary credits.

During negotiations, a documentary collection may be suggested as a helpful

compromise. In terms of relative advanmges for exporter and importer, it lies midway
between the sale on open account (advantageous for the importer) and the letter of
credit (advantageous for the exporter). An exporter wlll prefer the documentary
collection to a sale on open account. Conversely, the importer wlll prefer a documentary
collection to a letter of credit.

The central risks in international trade are the exporter's risk of non—payment and
the Importer's risk that the goods shipped will not conform to the contract. Both of
these risks may be eliminated via the letter of credit. Commercial letters of credit are
referred to by bankers as “commercial credits” and also as “documentary credits” - the
terms are used interchangeably. Since documentary credits involve rehtively complex
document processing, they are more expensive than other payment devices and are
therefore not always appropriate. Parties with long trading histories or residing in
adjacent countries may be willing to make sales on open account or with payment in
advance - payment modes that are easier and less expensive than the IfC, but which do
not reduce risk.

Despite its occaslonal complexlty, the letter of credit remalns the classic form
ofinternational export payment, especially in trade between distant partners. The letter
ofcredlt ls essentially a document issued by the importer's bank in which the bank
undertakes to pay the exporter upon due compliance with documentary requirements.
Hence, the term “documentary credit” - payment, acceptant or negotiation of the credit
is made upon presentadon by the seller of all stipulated documents that comply with
the terms and conditions of the documentary credit. Thèse documents (e.g., bill of
lading, invoice, inspection certificate) provide a basic level of proof that the right
merchandlse has been properly sent to the importer - alihough, of course, there is
always the chance that the documents may prove to be inaccurate or even fraudulent.
Exporters should be aware that doc mentary credits off:en requise impeccable document
management on the part of the exporter.

A typical procedure is as follows:

a) C0tlif8£L The process begins when the exporter and importer agree on a contract
of sale. 4}pically¡ it is the exporter that insists on payment by letter of credit -
bemuse it does not want to take a credit rlsk, and cannot get sufficient
information on the creditworthiness of the buyer to grant another form of
payment.
b) Apdllfl8ti0tl. The importer then initiates the letter of credit mechanism by going to
its bank and requesting it to open a letter of credit.
c) ls$ttdn0 . Subject to internal credit approval, the importer's bank issues the credit
112
(and is hence called the “issuing bank"), under which it agrees to pay according to
the importer's instructions. The credit is then sent to the exporter or to a bank in
the exporter's country (depending on the type of credit).

113
 d) honfif0latiotl (opli0nal). Commonly, under the sales contract and/or letter of
credit application, the exporter's bank (or another bank in the exporter's
country) will he requested to confirm the documentary credit, thereby committing
itself to pay under the terms of the credit. Exporters may inslst on confirmed
credits when they want to have a trusted loml paymaster.
e) N0fl5bation. The exporter (beneficiary) is notified of the avaflability of the credit.
Shipment attd pfflsentdfi0fi of d0£tim8iltfi. If the exporter agrees with the terms of the
credlt, it then proceeds toship the goods. After shipment, the exporter goes to the
bank nominated in the credlt to effect payment and presents the documents that the
importer has asked for. The exporter usually also presents a bill of exchange or draft,
a document representing the bank's payment obligation (see document deflnltions
above).
g) £aamlii4liott of docuill4fltsfdiecfepancy/Univel. The bank examines the
documents carefully to ensure that they comply with the terms of the credit. If
the documents do not comply, the bank cites a documentary “discrepancy", notifies
ihe exporter and refuses to pay the credit. The exporter may then either correct
the documents or obtain a waiver of the discrepancy from the importer.
h) tll8ftL If there are no discrepancies, or if any discrepancies found are waived by
the applicant, the bank will pay against the documents.
i) II tease of ocumeftfs In @piicmL The issuing bank will release the shipping documents
to the importer, who will then use them to obtain delivery of the goods.

There are benefits for both sides from the banks' examinadon of the documents. One
benefit to the buyer is that payment will only be made against documents in
conformity with the terms and conditions of the credit. But the exporter may abo
benefit from an early examination of the documents, since this allows for a possibillty of
quickly correcting any discrepancy. With documentary collections, discrepancies may
remain undetected until much later, when the documents are checked by the buyers
themselves.

8.3 Managing currency and exchange rate risks

New and small exporters may prefer simply to avoid exchange rate risk altogether,
thereby givtng up the possibility of profiting from fluctuations. The most common risk
management techniques for avoiding exchange rate risk are: 1) insisting that the
contractual currency of payment be one's own currency and, should that fail, 2) ueing
forward or option contracts to hedge against exposure. Larger or more experienced
firms may wish to take advantage of the opportunities for profits from exchange rate
fluctuations. Once a firm's foreign exchange exposure grows to a certain level, it generally
becomes advisable to assign currency management to a single, higNy specialized person
or department. This will allow the firm to apply a wider range of currency man ment
techniques, which can even generate significant revenues for the firm.

It is generally said that foreign exchange risks fall Into three categories: transaction
risk, translation rlsk and economic risk.

Men an international sales transaction Involves parties from countries whose currencies
are not fixed orpegged, an element of uncertainty is necessarily present. Tmnsaction risk
refers to
 exporter com to quote ap euro.
The coøtrect s delttfi within 3ß • payment 90 døts after røcelpt of thu

on the daieofthe bthe oeøttøcx thiø is to l,O00,000.“’" ‘

1) Iftbcdollør weøiæns lßRorciomøgøinattheeøiobetøeœi the time thccœiaact

1 is signed and the tă.aø pøyeienı k required, the exporter will £cnøßt, because

łf tfte dokar eaaagthana 10B or mom against the euro, the ouø edłł¥rs
eurø mcciæd by iBc Œpozzet’wtkbuy fëamr dollars and the œpartŒ w0l
ham lost (e.g., tho 1M muo ßnaBy recøtzed by the capoztæ a Øh¢,

e£tcrłæIsgezcł›aeged

A conservaôve or inexperienced exporter will be primarily concerned with avoiding a loss

rather than wlth potentlal gain. Therefore, he may wish to use a forward hedge, a
foreign exchange contract which locks tn the exchange rate in force on the day the export
contract is signed.

A currency hedge or forward exchange contract is a contract between the exporter and
a bank or foreign exchan8e intermediary. In the above example, the exporter will agree
to buy U5D1,000,0m in exchange for lM euros on or after the date payment is due
from the importer (in reality, the exporter will receive less than the USD1,000,000, because
the bank or other party to the foreign exchange contract will charge a commission, for
example, 0.9ß (USD9000), leaving the exporter USD991,000.

The USD9000 paid to the bank or foreign exchange dealer can be looked at as a sort of
insurance policy against currency fluctuation. No matter what happens, the exporter is
assured of receiving USD991,000. He has given up the possibility of gain that would
ensue ’ú the dollar weakened, but in exchange he has received the assurance he will not
lose if the dollar strengthens.

Oanslation risk is derived from the periodic nature of accounting report practices.
Acompany will periodlcally need to state on its balance sheet, in a particular reporting
currency, assets and liabilities that may be denominated in another currency. In
between two reporting periods, the relative values of the two currencies may have
changed. 3b some extent, the exposure to translation risk can be said to be a strategic
risk factor, which should be taken into consideration when weighing the potential costs
and beneßts associated with a foreign Investment decision.

113
Economic risk is the risk of currency fluctuations over the long term, and 1s thus also
of a strategic order. It arises from a company's commitment over time to a particular
set of counterparties and their currencies. Note that this risk cannot be avoided through
simple hedging techniques. For example, an ex9oner may wtsh to transfer transaction
risk to the importer by requiring payment in the exporter's currency. However, over a
period of years, if the exporter relies to a great extent on that particular market, it will
inevitably be affected by substantial exchange rate fluctiiatlons between the two base
currencies.

Adraftorbillofexchange(“B/E’9 is anegotiable instrument that represents an unconditional

demand for payment. Together with the blll of lading, it forms the basis for
documentary collectlon procedures. lbgether with the exporter's commercial invoice (see
below), the BOE can be used to charge the importer for the goods. Bills of exchange are
defined as follows: “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

Thus, the draft is written by the drawer (export seller) to the drawee (import
buyer), requiring payment of a flxed amount at a specific time. A draft payable upon
presentation is called a sight draft, while a draft payable at a future tlme is cailed a
usance (or time) dmft. The draft is legally accepted when a bank or the buyer writes
“accepted” along with the date and a signature on the face of a time draft. A draft
accepted by a bank is calied a banker's acceptance, while a draft accepted by a buyer is
called a trade acceptance.

Men the seller attaches the bill of lading or other transport document to a bill of
exchange, the bill of exchange is called a documentary bill. By doing this, the seller
ensures that the buyer wlll not obtain any rights to the goods (via the bill of lading) before
having accepted or pald the bill of exchange. Slnce they are negotiable, drafts maybe
transferred by endorsement to a third party who may become a holder in due course.

”A cargo at sea whlle In the hands of

necessarily O# physical
delivery. During thls period of tmnsit
recognized as Its eymbot, and the end
endorsement and delivery of the blll of lading ... }ust as under similar clrcuinstaricesI
the property would paas by an cccual dctM y of thc”grxids ... (T]he blll of lading B
a key which tn thu hands of the rightful owner k Intended to unlock the door of the '
warehouse, fioatlng or flzml, In whfli the goods may chance to be."
£ord ustice Bowen Szndm&ref6ers u. 3fzc4&m 6 W. 1883

1t4
The bill of lading (“B/L'3 is a central document in the tradltional export transaction,
linking the contract of sale, the documentary payment contracts and the contract of
carriage.

The marine 6lll Of I dlflg serves three baslc funcions:

1) f2›e B/L - at arry rate a B/I made oci •f› o›zfer• representa control over - or
‘stands for’ - che goods - The holder of the B/L can direct the carrier to release the
goods. It is sometimes said that the B/L ts a document of “tltle” - a phrase that
may give the inaccurate impression that the party who holds the bill of lading also
“owns” the goods. As we shah see in Chapter 9, the holder of the bill can exercise
control over the goods vis-à-vis the carrter: whether it owns the goods or not will
depend on the contract of safe and on the law applying to that contract.
2} The BAL evidences the contract of carriage - The B/L must contain the terms of
the contract of carriage, either explicitly or by reference to another document.
Under documentary shipment sales, the seller must procure and transfer to the
buyer a contract of carriage on “usual” or reasonable terms. Provided, therefore,
that the B/L contains no “unusual” term, it will represent the contract of carriage
called for by the contract of sale.
The B/L Is a receipt -The B/L is a receipt that evidences the delivery of the goods
to the carrier for shipment. Therefore, the B/L describes the goods and states that
in a certain quantity and in apparent good order they have been loaded on board.
If the carrier detects that the goods have been damaged, a notation to that effect
will be made on the face of the B/L. The B/L wtll no longer be considered a “clean”
BAL - it is now referred to as an “unclean” or “claused” bill. At that point, the B/L
may no longer be acceptable for presentation under a documentary credit.

A B/L may be issued in either negotiable form (an “order bill of lading’9 or non-
negotiable form (a “straight bill of lading”).

Bilb of lading play a key role in the documentary credit context because of their value to
the intermediary banks as security for the credit amount. This security value will vary
depending on whether or not the bill is a negotiable one - in which case possession of it
has money value, because the bill can be auctioned off - or whether it is a non—negotiable
‘Waybill” type document, In which case it may have virtually no security value to the bank,
unless the bank is named as consignee and steps are taken to ensure that this designation
is irrevocable.

Thisdocument ispreparedbytheexporterand generally includes: identificationandaddresses

of the seller and buyer, a listing and description of the goods (including prices,
discounts and quantities), an invoice number, packagiJ details, marks and numbers,
shipping details and the date and reference number of the buyer's order. Because other
documents (such as the documentary credit) will be checked against the commercial
invoice, it is of lhe utmost importance that it be correct and exact in all particulars. An
inemct invoice can be faiai to a letter of credit transaction. The buyer will often need the
information in the invoice in order to comply with import licences, customs duties and
exchange restrictions. Because of these needs the buyer will often request an advance
form of commercial invoice, called the pro forma invoice.
d. lnsurance documents
With documentary sales under such trade terms as CIF and CIP Incoterms 2010, the
seller must procure insurance for the benefit of the buyer. Aletterofcredit application will
necessarily reflect this insurance obligation, and an irisurance document will have to be
presented by the seller in order for it to receive payment. Depending on the case, the
document required may be an insurance policy (or facultative policy, for single
consignments), an open contract (for continuous or repeated shipments) or a certificate of
insurance (indicating cover under an open contract). The Institute of London
Underwriters Clauses specify the coverage required under Incoterms 2000, they are
generally attached to policies and indicate precisely the risks covered and exclusions
from coverage.

e Officid certificates and licences

The most important of these is the certificate of origin, which evidences the origin of the goods
and is usually prepared by the seller's local chamber of commerce. Inspection
certificates, which certify the quality of the goods, are commonly prepared by private
inspection agencies. to of the most famous are SGS (Switzerland) and Bureau Veritas
(France).

116