Documents in International Trade

In comparison with domestic trade International train presents certain special problems:

1. Sellers in international trade are not able to assess the creditworthiness of the buyers as reliable and thoroughly as sellers in domestic trade

2. Transportation of goods is slower and less certain and communication less efficient and more time consuming.

3. Legal settlement process are complicated, tardy and expensive In order to cope with these problems, international trade relies considerable on three major documents on instruments that is trade draft, bill of lading, and letter of credit.

Trade draft: The international trade draft, also referred to as a bill of exchange, is a a written order by the exporter (the drawer) asking be importer (the drawee) to pay specified amount of money at a certain time. The draught may be a sight draft (which is payable on presentation) or a time draft (which is payable A certain number of days after presentation). 

The important features of the draft are:-

1. It is an unconditional written order signed by the drawer.

2. It specifies the exact amount of money to be paid and the time when it is payable.

Once the boy or his banker accepts the draft, he acknowledges his obligations. The draft then becomes a trade acceptance. If it is accepted by the banker, it becomes a bankers acceptance. In this case the bank assumes responsibility for payment. Bankers acceptance is generally are marketable.

Bill of lading: a bill of lading is a document of shipping employed when the exporter transports goods to be importer. It serves several functions such as:

1. It is a document of title to goods.

2. It is a receipt given by the transporter to the owner mentioning the receipt of specified goods.

3. It is a contract that binds the transporter to deliver in goods to a specified party at a certain destination.

The bill of lading is to be used to be important only when the payment is made (when the bill of lading is accompanied by a sight draft) or when the obligation is acknowledged (when the bill of lading is accompanied by a time draft).

Letter of credit: A letter of credit is issued by a bank on behalf of the importer. As per this document, the bank agrees to honour the draft drawn on the importer provided certain conditions are satisfied. Through the letter of credit arrangement, the credit of the importer is substituted by the credit of bank. Hence it virtually eliminates the risk of the exporter when he sells to an unknown importer in a foreign country. This arrangement is further reinforced if the letter of credit is confirmed by a bank in the exporters country.