Account Party (Accountee):
The buyer/importer who arranges to have the credit established (opened).

Advising Bank (same as Confirming Bank, below):
The bank that advises the seller/exporter/beneficiary that another bank has opened a letter of credit. Also, by adding its "confirmation," the advising bank undertakes the obligation to pay the beneficiary (in addition to the obligation of the opening bank). The advising bank is generally a local bank in the country of the seller/exporter (beneficiary).

Beneficiary:
The seller/exporter/shipper: the party in whose favor the Letter of Credit is opened.

Confirming Bank (same as Advising Bank, above):
The bank which not only "advised" the Letter of Credit, but also by adding its "confirmation" undertakes the obligation to pay the beneficiary (in addition to the obligation of the opening bank). The confirming bank is generally a local bank in the country of the seller/exporter (beneficiary).

Example: Silicon Valley Microprocessor Corp. (SVMC) received an order to ship 10 pallets of electronic components to a wireless phone manufacturer in Singapore. SVMC's bank, the Silicon Valley National Bank, is the advising/confirming bank; and the Bank of Singapore is the bank that has opened the Letter of Credit. Silicon Valley National Bank "advises" its customer SVMC that the Bank of Singapore has opened the Letter of Credit, and "confirms" its obligation to pay their customer.

CFR:
"Cost and Freight." The seller must pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss of or damage to goods, as well as any cost increases, is transferred from the seller to the buyer. Transfer of the responsibility for risk takes place when the goods are loaded, either onto the ship in the port of origin, or onto the aircraft at the airport of origin.

CIF:
"Cost, Insurance and Freight." This term is basically the same as CFR, but with the addition that the seller/exporter must obtain insurance against the risk of loss of or damage to the goods during shipment. The seller contracts with the insurer and pays the insurance premium.

Delivered Duty Paid (see also Ex Works, below):
In terms of assumption of risk of loss or damage for the goods, and responsibility for their loading and transportation, a range of obligation exists for the seller/exporter. This range extends from no responsibility whatsoever, all the way to total responsibility for transportation and damage risk.

Delivered Duty Paid represents the maximum obligation a seller/exporter could assume for an international sale of goods. In particular, the seller assumes responsibility for loading the goods in the vehicle provided by the buyer, unless otherwise agreed, and the seller also bears the full cost and risk involved in transporting the goods from the seller's facility to the destination. While the term Delivered Duty Paid, when followed by words naming the buyer's premises, denotes the seller's maximum obligation in terms of assumption of loss/damage risk and responsibility for transport vehicle loading, the term "Ex Works" signifies the other extreme: the seller's minimum obligation. The term " Delivered Duty Paid" may be used irrespective of the mode of transport. If the parties wish that the seller should clear the goods for import but that some of the costs payable upon the import of the goods should be excluded--such as value added tax (VAT) and/or other similar taxes--this intent should be made clear by adding words to this effect (e.g., exclusive of VAT and/or taxes).

Discrepancy:
Any error relating to a Letter of Credit that may result in an exporter's payment delay. These errors can happen in either of two ways: First, errors can appear on the documents; transposed numbers, wrong dates or inaccurate descriptions of goods are just a few of many examples. Second, errors can also result from a bank's interpretation (or misinterpretation) of a clause in the Letter of Credit and how that clause is represented in the documents. Banks apply a general principle that information on associated documents must be "consistent" with information appearing on a Letter of Credit. Beyond that general concept, no official explanation of what amounts to a discrepancy exists. Discrepancies often result from the subjective interpretations of individual bank examiners. It is common for different examiners within the same bank to apply different consistency standards when reviewing documents.

Ex Works:
Signifies that the seller's only responsibility is to make the goods available at his premises. "Works" in this phrase is used in the sense of "factory," so Ex Works roughly means "at factory." In particular, the seller assumes no responsibility for loading the goods in the vehicle provided by the buyer, unless otherwise agreed. The buyer bears the full cost and risk involved in bringing the goods from the seller's facility to the desired destination. In terms of risk and responsibility, this phrase thus represents the minimum obligation a seller/exporter could assume for an international sale of goods. (Contrast this phrase with the phrase "Delivered Duty Paid," above).

FOB:
"Free on Board." The location at which responsibility for shipping costs and damage to the goods passes from the seller to the buyer. Until the goods reach this location, the buyer is free of insurance and shipping costs. Example 2: Suppose the goods are placed on board a ship by the seller at the Port of Seattle, which is the port named in the sales contract. Under the terms "FOB Port of Seattle," the risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods are loaded onto the ship docked at the Seattle port.

FOB Airport:
Based on the same main principles as the ordinary FOB term, above. The seller fulfills his obligation to transport the goods free of damage by delivering the goods to the air carrier at the airport of departure. Responsibility for further shipping costs, as well as loss or damage to the goods, passes from the seller to the buyer when the goods enter the aircraft.

Letter of Credit:
(L/C) A Letter of Credit is a financial instrument used to transfer funds from an importer or customer to an exporter or shipper. Letters of Credit are needed to mitigate the importer's credit risk, by substituting the creditworthiness of a foreign financial institution. That way, companies engaged in export sales often use L/C's to minimize their risk of nonpayment. In a practical sense, a Letter of Credit is a written contract to pay money to an exporter, usually subject to the prior receipt of specified documents. If the documents relate to a sale of goods, the L/C is a "Commercial Documentary L/C." If no documents are specified, the L/C is a "Clean L/C."

Negotiating Bank:
The bank which "negotiates" the credit (advances funds) against presentation of documents as stipulated in the Letter of Credit, subject to final payment by the importer.

Opening Bank (Issuing Bank):
the bank of the account party/buyer/importer which issues or opens the credit. To an exporter, this is usually a foreign bank.

Paying Bank:
The bank on whom the bank draft is drawn, or the bank named as the bank that will pay the beneficiary (seller/exporter/shipper).

Beneficiaries of Letters of Credit (exporters) should insist that the credit be paid to them via a bank in their local area. Why? It is the role of the exporter's local advising or confirming bank to verify the signatures on the Letter of Credit, to determine that they are authorized signatures, and to verify that the credit is therefore a valid obligation of the opening bank.