The Role of Trade Finance in Working Capitalthe possibility for the lessee to extend the
contract term after a certain period of time
and at predetermined conditions.
Open Insurance Policy A marine insurance
policy that applies to all shipments made by
an exporter over a period of time rather than
to one shipment only.
Operating Lease A lease where the lessee’s
payments do not cover the full cost of the
asset. The operating lease is classed as a
true lease (USA). The lease is normally for
a period which is shorter than the asset’s
useful life and the lessor retains ownership
of the equipment during the lease term and
after it expires. Anticipated maintenance and
other costs can also be built into the rental
payable by the lessee.
Order Bill of Lading A negotiable bill of lading
made out to the order of the shipper.
Output Specification Refers to the
requirements, specified by the procuring
authority, on what they want the project to
accomplish. The prospective contractors
must then resolve how the requirements will
be best met.
Packing List A list detailing the contents of a
consignment.
Partial Shipment A shipment that is less than
the total quantity ordered.
Payable through Draft (PTD) A draft that
is only payable via a nominated bank.
Depending on the conditions attached to the
draft, the nominated bank may be the paying
bank or only act as the collecting bank that
presents the draft for payment. See draft.
Performance Bond A bond issued by an
insurance company to cover a specified loss
if the EPC contractor fails to complete the
construction of the project.
Performance Guarantee An undertaking that
a project will be completed adequately by
the contractor, and cover against loss if the
contractor fails to do so.
Presenting Bank The bank responsible
for contacting the buyer (importer) and
submitting documents for payment or
payment acceptance. See collecting bank.
Primary Period The initial period of a finance
lease during which the lessee pays rentals
that will fully amortise the initial cost of
the equipment plus interest. The lessee is
committed to paying rentals and fulfilling all
other obligations of the lease contract.
Prior Deposits A government requirement that,
as a condition of importing, the importer
deposit in a commercial or central bank a
specified sum of money. The deposit, which
generally represents a percentage of the
total value of imported goods, is due upon
granting of an import licence and will be held
until completion of the import transaction.
Deposits do not attract interest and thus
represent a real cost for the importer.
Production Payment A payment securing the
right to a specific percentage of a product or
service.
Pro-forma Invoice An advance copy of the final
invoice. Often used by importers to apply
for letters of credit and for foreign exchange
allocation in countries where that is required.
Project Finance A form of financing projects,
primarily based on claims against the
financed asset or project rather than on
the sponsor of the project. However, there
are varying degrees of recourse possible.
Repayment is based on the future cash
flows of the project.
Promissory Note A written promise by a
borrower to repay a loan in accordance with
the specific details of a contract.
Protest An action required to be taken in some
countries in order to protect one’s rights to
seek legal remedies when a collection or
negotiable instrument is dishonoured.
Purchase Option An option permitting the
lessee to buy the leased asset at a specified
price or at the fair market value at the end
of the lease term. See lease purchase, hire
purchase.
Purchase Option Price (Purchase Option
Value) The price at which the lessee has the
option to buy the asset on a specified date
(normally at the end of the lease).
Red Clause Letter of Credit A letter of credit
that permits the beneficiary to receive
advance payment before shipment has
taken place, usually against the beneficiary’s
certificate confirming its undertaking to ship
the goods and to present the documents in
compliance with the terms and conditions of
the letter of credit.
Recourse Factoring The sale or transfer of