FINANCIAL TERMS USED IN TRANSACTIONS

CASH AGAINST DOCUMENT FINANCING (CAD)

Cash Against Document Financing (CAD financing) is a method in which an importer pays for goods before receiving them. To ensure the satisfaction of the transaction from both the parties, a third party will accept the shipping and title documents for the exported goods. There is no release of the product to the buyer – or importer – until the completion of payment. This situation is similar to real estate transactions, where an uninterested party holds money in escrow until the transfer of the home’s title is complete.

TELEGRAPHIC TRANSFER (TT)

A telegraphic transfer (TT) is an electronic method of transferring funds utilized primarily for overseas wire transactions. These transfers are used most commonly in reference to Clearing House Automated Payment System (CHAPS) transfers in the U.K. banking system. Telegraphic transfers are also known as telex transfers, abbreviated TT; they can also refer to other types of transfers. The payment abbreviation, as is often the case, is utilized to speed discussions in professional circumstances. Telegraphic transfers are usually fairly expensive due to the fast nature of the transaction. Generally, the telegraphic transfer is complete within two to four business days, depending on the origin and destination of the transfer, as well as any currency exchange requirements.

STANDBY LETTER OF CREDIT (SBLC)

A Standby Letter of Credit (SBLC) Standby Letter of Credit / SBLC (MT-760) is a written commitment of a bank that issues it to pay a certain amount of money on behalf of the bank’s client in favor of a beneficiary in case the client/buyer is not able to fulfill its financial obligation to the beneficiary/seller.

LETTER OF CREDIT (LC)

A letter of credit (LC), also known as a documentary credit or bankers’ commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Letters of Credit are used extensively in the financing of international trade, where the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as an underwriter, where it assumes the counterparty risk of the buyer paying the seller for goods.