Documents Used in International Procurement

In this section, you will study important documents that are used in international trade and their purposes. Some most important documents used in international procurement are as follows:

Documents Used in International Procurement

• Bill of Exchange (B/E)
  
• Invoice
  
• Bill of Lading
  
• Insurance Certificate
  
• Certificate of origin
  
• Packing List and Related Documents
  
• Shipping Bill

Bill of Exchange (B/E)

A B/E is a legal document evidencing the payment obligation of the drawee owing to the trade transaction. The bill of exchange is an important document in the case of D/A (Document Against Acceptance) and D/P (Document Against Payment) methods of payment.

A B/E is a negotiable instrument. It is drawn by the exporter on the importer and made payable to himself. There are three parties to the instrument, viz., Drawer, Drawee, and Payee. The drawer (supplier/exporter) is the party issuing the bill of exchange.

The drawee (usually buyer/importer) is the recipient of the bill of exchange for payment or acceptance. The payee (usually the seller’s bank) is the party to whom the bill is payable.

The B/E under the letter of credit (LC) or documentary credit is drawn by the beneficiary, i.e., the exporter on the issuing bank with the relevant LC number under which it is drawn and issuing bank name, with other details such as tenor, sight or a number of acceptance days in the case of usance bills, the bill amount in LC currency, date of bill of exchange, etc.

Invoice

This is the most basic commercial document. It contains details related to the sale of goods such as the description of goods, quantity, value in unit terms, applicable Incoterms, the total value of goods, contract number, order number, or proforma invoice number related to the transaction.

It is issued by the exporter (seller) in the name of the importer. If an invoice is generated under an LC, it should specify the LC number and abide by both the sale contract and LC terms.

Bill of Lading

It is a document that serves as evidence that the movement of goods from the port of acceptance to the port of destination when goods are transported by ships.

It is the receipt issued by the shipping company or its agent that contains details such as the description of shipment, quantity, quality, date of shipment, name of the vessel, name of the consignee (buyer), payment of freight, etc.

Note that the bill of lading is “the document of title” to the goods that are being shipped. A Bill of lading is issued by the shipping company to the exporter. The exporter sends the original bill of lading to the importer’s (buyer’s) bank through his/her banker.

The importer needs to produce the original bill of lading at customs or bonded warehouse without which he will not be able to get the delivery of the goods. Thus, the bill of lading is one of the most important documents in international trade transactions.

If the transaction is under LC, the bill of lading will contain details regarding the LC number. It is drawn to the order of the shipper/ exporter and blank endorsed in the favour of the issuing bank as per the stipulation of the LC.

Note that when a document is blank endorsed, it is transformed from being an order instrument to a bearer document.

Insurance Certificate

The transport of goods through ships entails risk and hence insurance of the shipment is necessary. Similar to the freight, the question of who pays the insurance and who bears the insurance cost is decided by the Incoterms accepted between the buyer and exporter.

The insurance certificate or policy is the document issued by an insurance company evidencing insurance of the voyage of a shipment from the port of shipment to the port of destination. It is generally taken for 110% of the CIF value.

The claim is payable in the country of the applicant. The insurance document provides the description of the shipment covered by insurance in conformity with the LC terms. It is blank endorsed and sent in originals along with other documents such as bill of lading, invoice, etc., where applicable.

The insurance cover is effective from the date of shipment to the point of termination of the coverage mentioned in the policy.

Certificate of origin

It is meant for determining the country of origin of the goods. It is issued and signed by an independent authority like the Chamber of Commerce and contains a full description of the goods being shipped, invoice value, bill of lading number, etc. This is one of the important documents needed for customs clearance.

Packing List and Related Documents

The packing list provides a detailed description of the shipment and accompanies other documents such as invoices and bills of lading, quality certificates, weight list, etc. Some of these may be required as per the demands of LC terms.

For example, the importer may ask for a quality certificate to accompany shipping documents. The quality certificate provides details about the quality of the shipment from an authorized third-party quality certification agency.

Shipping Bill

The shipping bill is the document that is to be filed with the Indian customs authority by exporters for making shipments out of India. The bill is required for any goods moving out of the country for getting approval from customs.

It contains several details pertaining to the export such as LC number, date, invoice number and date, name of the consignee, name of shipper, port of loading and discharge, place of receipt of cargo, marks, and numbers of packages, number of packages, unit price, FOB value of goods, the total value of goods in local currency, etc.

The shipping bill can be filled by electronic means if the Electronic Data Interchange (EDI) facility is available at the location of the customer.

Please note that nowadays most international purchases are done using documentary credits given by banks. The documents required for import procurement are most of the time required mandatorily by the banks.

The documents must be submitted in accordance with the provisions of the UCP (Uniform Customs and Practice for documentary credits) 600 and the contract of sale.

Expediting and Tracing Shipments

The literal meaning of expediting is ‘to speed up’. In the case of trade and shipments, it refers to speeding up the delivery of the shipment/ consignment so that it reaches early to its destination.

In other words, expediting means that the shipment will take lesser time than usual. Before a carrier is given a shipping request, he must be made aware of the expediting requirement.

The carrier may provide this service when the buyer (or consignor) urgently needs the shipment to be delivered on or before a particular date. Most carriers may provide this service free of charge as part of customer service while some may charge extra fees.

Expediting should be requested only when the consignor or consignee is convinced that the shipment may not arrive at the destination on time. If the consignment has already been shipped, the carrier can be contacted with a request for expediting the shipment.

Depending on the logistics involved and the status of the shipment, the carrier may or may not be able to expedite the shipment.

Tracing is the procedure of locating shipments. It is a service provided by carriers when it is necessary to locate a shipment en route or when the shipment is not delivered as per the schedule. The consignor or buyer may request the carrier to provide information regarding the status of the shipment.

The status of the shipment can be traced based on the waybill number or similar shipping document reference.

The information required for tracing usually includes:

• Date of shipment
• Shipper
• Origin
• Consignee
• Destination
• Description of commodity shipped
• Initial carrier
• Carrier’s Waybill number
• Bill of Lading number
• Number and types of packages
• Weight of shipment

Most carriers provide the status of shipments through electronic/satellite online tracking systems which allow the tracking of shipments at any point in the route based on shipment reference data.

Tracing is done after the lapse of the scheduled delivery time whereas expediting is done before the shipment leaves the departure dock or before it arrives at a junction or between the transfer sites.

Frequent requests and requirements of tracing can be costly to both carrier and shipper. It is an indication that something is wrong and could be a reflection of the carrier’s poor service record. In such cases, the buyer should switch to a better carrier that offers better services.