As a business owner and international merchant, there are some key business terminologies that you are bound to come across when conversing with clients or other entrepreneurs. Knowing these terms can boost your company’s image, and also help you elevate your networking skills.
Read on to find out what are some of the common business terms that you should know as an international merchant.
This article at a glance:
- What documents do I need to ship internationally?
You will need a certificate of origin, a bill of lading, a commercial invoice and a packing list. Be sure to check the laws in your destination country for additional documentation.
- Is there a difference between SWIFT and IBAN codes?
Yes. It is important to note that these terms are often used interchangeably, but they are not the same.
- How can I send and receive money from overseas payments easily?
Consider using a multi-currency account that holds more than 30 currencies within a single account.
SWIFT (Society for Worldwide Interbank Financial Telecommunications)
Have you ever wondered what goes behind the scenes when you transfer money overseas? This is where the SWIFT system comes in - to quickly and accurately send and receive information such as money transfers.
With SWIFT payments, your business can accept electronic or card payments even when dealing with customers or suppliers who use a different bank.
How does this work? SWIFT assigns every organization with a unique code called the SWIFT code (also known as SWIFT ID, bank identifier code (BIC) or ISO 9362 code). Keep in mind that SWIFT only acts as a messenger, it does not hold any funds nor manage client accounts.
When will you need to use SWIFT payments?
Example: Catherine has a business based in Hong Kong, and she wants to remit money to her supplier’s company based in the US. Catherine can transfer money directly from her commercial account to her supplier’s account if the two banks have a relationship. A transaction fee is charged to either Catherine or her supplier, depending on what instructions she chooses.
📍 Tip: When working with customers or vendors, remember that if two banks do not have an existing relationship, you will need to go through an intermediary bank. We’ll go through this in the next sections.
OUR / BEN / SHA codes
When you transfer money with SWIFT, the bank charges a transfer fee. Who pays this fee then? Thankfully, you can choose who pays the transfer charges.
When you are the remitting party, here’s what you should input in the ‘Details of Charges’ field 71A.
OUR — you pay all transfer charges.
If you want your beneficiary to receive the full amount you send, use OUR.
SHA — you pay for only your bank’s outgoing transfer charge.
Your beneficiary will pay the SWIFT, receiving bank charge and relevant handling fees.
BEN — you do not pay any charges.
By entering BEN, your beneficiary will not receive the entire amount you send. Instead, all charges will be deducted from the amount they receive.
When two banks have a relationship, you do not need an intermediary bank. However, when you and your beneficiary’s bank do not have a relationship, this is when you need an intermediary bank to ensure your payment goes through. Bear in mind that you will be charged an additional fee for every transfer.
How about currency exchanges? If you are sending in HKD for example, and your beneficiary receives in USD, the currency exchange will be done by either one of the banks.
IBAN (International Bank Account Number)
Often confused with SWIFT, it is important to note that a SWIFT code and IBAN number is not the same.
A SWIFT code is used to determine which bank account you are using when making a transfer. It consists of:
- AAAA (bank code in letters only)
- BB (country code in letters only)
- CC (location code in letters and digits)
- DDD (branch code in letters and digits)
The IBAN number identifies the specific bank you are transferring from. Here’s how a UK IBAN looks like:
- AA (country code in letters)
- 11 (transaction number in digits)
- BBBB (bank code in letters)
- 123456 (bank sort code in digits)
- 12345678 (a number unique to the bank account)
📍 Tip: not all countries use IBAN. An example is banks in Hong Kong - they only use SWIFT codes.
Bill of Lading
When shipping internationally, the bill of lading (also referred to as BL or BoL) is a legal document that is issued by a carrier to a shipper. The bill of lading must be included in all your shipments, whether it is transported by sea or air, and must be signed by an authorized person from the carrier, shipper and receiver.
In the bill of lading, record the type, quantity and destination of the shipment. Having this document accompany your shipments can be useful when preventing asset theft and when you require a negotiable instrument for payments using a Letter of Credit.
There are various forms of a bill of lading - a straight bill of lading, negotiable/order bill of lading, seaway bill of lading. So what is an original bill of lading then?
An original bill of lading is the physical paper document of a straight bill of lading or order bill of lading. When your shipment reaches the destination, the release of goods only happens upon surrender of one or more of the original bills of lading issued by the carrier.
A telex release is an electronic form of release that is issued when all original bills of ladings are surrendered. The goods carrier must obtain the bill of lading before they can release cargo to a consignee or an authorized person stated on the bill of lading. This allows the carrier’s agent to release cargo at one port even though the shipper has surrendered the original bill of lading at another port.
Example: William’s company A in Nigeria sends a shipment to company B in Germany. The shipment arrives after a week in Germany and company B urgently needs the shipment to be cleared immediately upon arrival.
However, it takes two days to prepare, print and authorize all shipping documents, and company B is unable to wait that long. In this case, William’s company can surrender the original bill of lading with any other copies of it to the shipping company and request it to issue a telex release.
Once the telex release is issued, the original bill of lading will not be required to clear the shipment, and the shipment can be released upon arrival to company B in Germany.
Certificate of Origin
When you export your products to another country, it makes sense to declare where your products originate from. When you prepare your shipments, you will require the certificate of origin and a commercial invoice - these two documents generally carry the same information. This certificate is mainly used to check if the goods can be imported, and whether they are subjected to duties.
For more information on custom duties and taxes, check out our guide on taxes when shipping internationally.
Keep in mind that customs usually requires the certificate of origin to be a separate document from the commercial invoice or packing list. Of course, this also depends on the regulations of your destination country and how strict they are with shipment documents.
Example: A shipment may arrive with a label that marks it with “Made in the US” or “Made in Vietnam”.
This document is one of the most important legal documents in international trade and shipping. It acts as a legally binding contract and a proof of sale between an exporter and the importer, containing information such as the price, value and quantity of the goods and the sale conditions agreed by the buyer and seller.
There’s a difference between the commercial invoice and Bill of Lading. In fact, the commercial invoice does not indicate who owns the goods or who the goods are being sold to. However, your shipment must contain the commercial invoice in order for customs to calculate and assess how much you need to pay for duties and taxes.
Telegraphic Transfer (TT)
A Telegraphic Transfer is the method of transferring funds to an overseas partner. You’ll probably hear the term TT being used more in Australia, New Zealand and the UK.
TTs can be a bit more costly due to the fees that incur. Let’s take Australia for example. When you make a TT from Australia, here are some of the fees you may need to pay:
- Bank fees by the sender
- Bank fees from the recipient
- Corresponding bank fees
- Currency exchange rate margin
When you do a TT, you’ll need the recipient’s name, address, bank account details (account number, SWIFT code and bank address). Remember to get all these details correct, or your transfer request will be rejected although you have already paid the incurred fees.
TT is a payment method that businesses usually use for larger payments, while a remittance payment is most commonly seen as a payment that is sent from a migrant living abroad to their family in their home country. So, when you converse with customers or suppliers, using the term telegraphic transfer will be a better choice.
CFR (Cost and Freight)
Cost and Freight is a legal foreign trade contract between the seller and the buyer. When you, as a seller or exporter, specify in a contract that a sale is cost and freight, you are legally responsible to arrange the carriage of your goods by sea to a destination port. You must also provide the buyer with all the necessary documents to obtain the goods from the carrier.
When the contract contains CFR, the seller is not responsible for procuring marine insurance for the cargo in cases of loss or damage that occurs during transportation.
📍 Tip: CFR is a term that is only used for cargo transported by sea or inland waterways, and does not include air shipments.
Example: Benjamin is an exporter who is shipping from Nigeria to the EU by sea. The contract that he signed with the buyer in the EU states cost and freight. As such, Benjamin is responsible for delivering the goods, clearing them for export, and loading them into the ship. Once the goods are on the vessel, the risk of loss or damage shifts to the buyer. Benjamin is not liable in cases where the goods are damaged or lost during transportation or when it reaches the destination.
Freight forwarding is very widely used in international shipping and transport. They are companies that coordinate your shipments from one destination to another using air freight, ocean freight, road freight and event railway freight.
If you do not want to handle the shipping of goods yourself, another method to get your goods shipped is buy using a freight forwarder. When you engage a forwarder, the entire shipping process becomes less stressful. Here’s why.
What a freight forwarder does for exporters:
- Customs clearance
- International export and import documentation
- Shipping and transportation insurance
- Packaging of shipments
- Storage of goods
To put it simply, a freight forwarder does the hard work for you by negotiating shipping prices and deciding on the most cost-saving and fastest way to get your goods to your destination country.
Line of Credit
A line of credit (LOC) is a two-way arrangement between a bank and a client, where the client taps into a preset borrowing limit, and can be utilized whenever needed until the limit is reached. Remember that the line of credit’s maximum amount has already been set and agreed upon in the agreement, and cannot be exceeded.
If you have an open line of credit, this means you can repay previously borrowed balance, and then borrow again.
Keep in mind that these credit lines come with their own interest rates ranging from 8.25% to 15%. That said, it can be cheaper than repaying a credit card’s interest rate.
With the popularity of electronic money institutions, you should understand how your money is safe when using e-money institutions such as Silverbird. If you’re familiar with robo-investors platforms such as StashAway, the term ‘safeguarding’ should sound familiar.
With safeguarding, your money is stored in accounts separate from Silverbird’s funds. In simpler terms, it means that even if Silverbird faces unlikely bankruptcy, your money will remain 100% yours and will be safely returned. We safeguard your money with UK and EU banks in compliance with the Financial Conduct Authority (FCA in the UK) and De Nederlandsche Bank (DNB in the Netherlands, EU).
As the name says, businesses are responsible to ensure that they act in accordance with established guidelines in their jurisdiction or country.
For instance, as an exporter, there are certain things you have to be compliant about. These include packing of your products, arranging shipments, ensuring documents are done in accordance with the regulation, and making sure your buyer receives your goods.
Letter of Credit
Also known as a credit letter, the letter of credit is a letter issued by a bank that guarantees that a buyer’s payment to the seller will be on time and accurate. A letter of credit is normally used in international trade as a form of reassurance to the seller, because of factors such as distance, differing laws, and KYC difficulties.
What happens if your buyer has a letter of credit but fails to make payment to you on time? The bank that issued the letter of credit will be required to cover the full or remaining amount of the money that the buyer owes you.
In order to be issued a letter of credit, banks will require a pledge of securities or cash as collateral. If you fail to pay up your payments, your collateral will be used for repayment to the bank.
Know Your Customer (KYC)
Due to the increase in e-transactions, it is becoming more difficult for financial institutions and businesses to “know their customer”. Often linked with anti money laundering (AML), KYC compliances play a very important part in reducing trade and credit risk.
For financial institutions such as banks, it has become more difficult to verify that customers are indeed who they say they are. Even with face recognition and electronic means, some banks require customers to be at the bank physically in order to open a bank account.
One example is the banks in Hong Kong, which will require all shareholders and directors to be physically present at the bank to open a corporate bank account.
For businesses, how do you ascertain that your buyer is credible and is able to pay for goods on time? One way is to apply credit risk assessment - to do background checks on the company you are planning to enter business transactions with.
As an international merchant, having a corporate bank account that allows you to transfer, receive and hold more than one currency is definitely a boon. Imagine trying to send money overseas but need to convert SGD currency into EUR. What are the conversion rates? Are you sending over too much?
While having a multi-currency bank account makes your life simpler, there are additional fees involved. Such fees include one to open the account, the fees per transaction and the annual maintenance of the account. Believe us, these fees may not seem like a lot, but they do add up over time.
With Silverbird, we help you get your multi-currency account for simple cross-border payments, allowing you to hold, transfer and exchange foreign currencies. We offer competitive and transparent exchange rates, allowing you to convert over 30 currencies within a single account with low FOREX rates.
Author: Silverbird Content Team
Illustration: Irina Lisogor