Documents used in foreign trade

Indent
An indent in foreign trade is the same as an order form in home trade. It is an order to buy
goods abroad. It is sent by an importer (principal) to an agent overseas. An indent can be in
two classifications namely:
Open indent
Closed indent

Open indent
It can be an open indent in the following instances:
when the indent does not state where the goods are to be obtained
when the agent must obtain quotations from
several suppliers or manufacturers
when the agent must inform the principal
About the orders placed on his behalf.

Closed indent
It can be a closed indent in the following instances:
Where it specifies the types and brands of goods required and the manufacturers from whom
the agent must buy the goods.
An indent gives details of the following:
The types of quantities and prices of goods required
How goods are to be forwarded
The markings or numbers on crates for identification
The cost of insurance
How goods are to be packaged
The place and address to which goods are to be delivered
The terms of payment.

Export invoices
Prepared from various invoices for goods purchased and expenses incurred (on
transportation and warehousing of goods)
Summarises the goods bought and expenses incurred.
Copies of the original invoices received from suppliers of goods and services are attached to
the export invoice for reference.
Accompanies the goods when being exported.
The copy is attached to the bill of lading.
Form part of the documentary credit.
‘Speed up checking and clearing of goods by customs authorities.
Contains:
A summary of details of goods that is the types and quantities.
Marking or numbers on crates or packages.
Name of vessel carrying the goods.
When and where the invoice was issued.
Freight charges or dock dues.
Insurance costs.
Names and addresses of importer and exporter.
Signature of exporter who compiled the invoice.
Unit price for and total amount payable on goods to be exported.
Terms of payment e.g. free on board (FOB)
Cost, insurance and freight (CIF)

Certificate of origin
Specifies the name of the country which goods being exported have been manufactured e.g.
made in China.
Required for the assessment of amount of duty to be charged on imports from the country of
origin.
Required when customs authorities want to enforce an embargo.
Signed by an exporter or a consul to certify the origin of the goods.
Send together with the goods being exported.
Contains:
A description of the goods e.g. types
Quantities of goods
Names and addresses of the importer and exporter.
The signature of the exporter/and or consul.
The name of country of origin of the goods. E.g. Zimbabwe

Consular invoice
Assist customs officials to calculate customs duty where duty is charged on the value of
imported goods.
Signed by a consul of the importing country certifying and confirming that the prices of the
goods are correct:
Prices of the goods being exported have to be authenticated because exporters and agents
sometimes falsify the prices by understating them so as to pay less customs duty.
A consul is a trade representative of the importing country resident in the exporting country.
There is no need for customs officials to inspect the goods when calculating customs duty
Prevents cheating when assessing duty.
Speeds up clearing and delivering of goods.
Assists customs officials to prohibit importation of banned goods.
Accompanies the goods being exported.
Contains:

A description of the goods e.g. types.

Quantities of goods
The prices of the goods.
A declaration by and signature of the consul of the importing country.
Names and addresses of the importer and exporter

Certificate of insurance
Provides proof that the goods being transported have been insured.
Has to be produced when making a claim to the insurance company, if a risk insured against
has occurred.
To cover all exports within a stipulated period of time.
To avoid individual cover for each consignment.
Accompanies the goods being transported.
Required as part of documentary credit.
It can be an open (floating)
insurance policy for these reasons:
It covers all exports within a stipulated period of time.
It does away with individual cover for each consignment
It can be a specific insurance policy to cover a particular cargo
It accompanies the goods being transported
It is required as part of a documentary credit.

Bill of lading
Is required whenever goods are transported by sea.
An agreement entered into by the shipping company and the exporter.
Is evidence (acknowledgement) of receipt for goods on board a ship.
It is a document of title which gives the bearer ownership of goods.
It is a quasi-negotiable instrument which allows ownership of goods to be transferred to
another person by endorsement.
Forms part of a documentary credit.
Allows goods to be bout or sold whilst in transit.
I usually made in three copies which are distributed as follows:
One copy remains with the exporter who is also known as the consignor.
The second cop is sent to the importer also known as the consignee by air transport to reach
him/her/them before the goods arrive.
The third copy is given to the captain of the ship and accompanies the consignment of
goods.
It shows:
A detailed description of the goods i.e. the types and quantities of the goods forming the
consignment.
The condition of the goods when the bill was made, described as either clean or dirty.
A clean bill of lading is issued when the goods are received intact and a dirty bill when the
goods are damaged.
The port of loading and offloading the goods.
The cost of transporting the goods.
The numbers or markings of the crates or containers.
The name of the shipping company and the details of the ship.
Names and addresses of the consignor and the consignee.
Anticipated date of arrival of the ship.
The total value of the goods.

Air waybill
An air waybill is a document that is used when goods are transported by air. It is a contract
of carriage or an agreement to carry goods on board an aircraft. It is evidence of receipt of goods
on board an airliner. It accompanies the goods and contains:
A detailed description of goods
the quantities and weights of goods
the information of the airports of origin and
destination of the cargo
the name of the airliner, such as Au Zimbabwe
the name and address of the consignor and consignee
The flight number, for example. UM 2-l07 of Air Zimbabwe
the flight charges, such as the cost of
transporting the goods by air
The terms and conditions under which the goods are carried.

Bill of exchange
The Bills of Exchange Act (1882) defines a bill of exchange as is an unconditional order in
writing, addressed by one person to another, signed by the person giving it, requiring the person
to whom
it is addressed to pay on demand, or at a fixed determinable future time, a certain sum of
money to order or to bearer'
A bill of exchange is:
drafted by an exporter and sent to an importer
drawn by an exporter and payable to the same exporter
drawn for a period of three months or multiples of three months
Accepted by the importer who then writes accepted across the face of the bill and signs it.

Importance of a bill of exchange

A bill of exchange is a written unconditional order, which is used to secure payment
and is important for the following reasons:
It is a method of settling debts used mainly in international trade.
It is required as part of a documentary credit.
When accepted and signed by an importer, it is evidence of a debt.
It can be discounted before it matures to enable the exporter to obtain early payment.
Discounting the bill prevents working capital being tied up in debt.
It enables imported goods to be sold before the bill matures.
It allows an importer period of credit before making payment.
It enables trade to exist among Companies of different countries.

Letter of credit
A letter of credit is used when an importer requires a period of credit. It is an important
document and the correct procedure for a letter of credit needs to be followed.

Procedure for a letter of credit

The importer and exporter agree to use a letter of credit.
The importer requests his bank to draft a letter of credit, on his behalf, to send to the
exporter, showing: the details of goods the exporter must Supply where to ship these goods
Documents to be produced in order to obtain payment.
The importer then asks his bank to forward this letter to the exporter's bank.
On receipt of the letter, the exporter's bank advises the exporter of this credit facility
at his disposal and the exporter then ships the goods to the importer.
After shipping} the exporter presents the documents, such as the bill of lading, the certificate
of insurance and the export invoice, stated m the letter of credit to his bank.
The exporter is then paid by his own bank.
The shipping documents are then sent to the importer's bank.
The importer's bank remits payment to the exporter's bank on receipt of the shipping
documents.
After advising the importer of the Shipping documents in its possession, the importer's bank
is paid by the importer.
Finally, the importer's bank releases the shipping documents to enable the importer to claim
ownership of the goods.

The letter of credit is important for the following reasons:

It facilitates payment in foreign trade
It can be a documental letter of credit when accompanied by Shipping documents, for
example, the bill of lading, the certificate of insurance and the export invoice.
The importer is certain that the ownership of the goods is assured before payment is made,
for example, the importer does not make payment until the Shipping documents are in the
possession of his bank.
The importer requires a short period of credit.
The exporter is not willing to release goods to an unknown or untrustworthy importer before
receiving payment.
The exporter is guaranteed prompt payment by his bank on handling over the
Shipping documents
The importer is financed by his bank.
The letter of credit can be:
Revocable the bank's authority to make payment may be cancelled by the importer at any
time without notifying the exporter.
Irrevocable e.g. the bank's authority to make payment cannot be cancelled without the
consent of the exporter as the exporter must be consulted before cancellation of payment.
Confirmed. For example, the exporter is guaranteed early payment by his bank on handing
over the shipping documents representing goods.

Import licence
An import licence is a document issued by an importing country. It authorises an importer to
bring a specified quantity of specified goods into a country for a specific sum of money during a
specific period of time, usually one year.
It is an approval for goods to enter a country. It stipulates the volume or quantity of goods to
be imported, which should not exceed the quota, and the types of value of goods.
An import licence is important for the following reasons.
It is a non-tariff barrier to trade.
It is a method of discriminating against the goods of another country.
It is a way of restricting the outflow of foreign currency to improve a country's balance of
payment position.
It enables the importer to obtain foreign currency to pay for the imports.
It controls the entry of dangerous items in Zimbabwe, such as explosives or firearms.
It protects domestic industries from foreign competition.
Export licence
An export licence is a document used by an appropriate licencing agency. 0nce this issued
an exporter is permitted to transport his goods '
In to a foreign country. The trader may then sell his goods there. The document shows:
the types and quality of exported goods
the quantities of goods
the value of the goods
where the goods are going to [the port of destination]

Customs specification
Customs specification is a document that states details and rules for importing goods into
and exporting goods from a country. It is required by customs officials of an exporting country.

Bill of entry
A bill of entry is a declaration of information on imported and exported goods prepared by a
customs broker on a prescribed form called an 'entry form' or 'duty entry form' and it is submitted
to the customs officials. If the entry form is verified as correct or 'perfect entry', the goods are
released to the importer on payment of duty and are then allowed to be exported. It states:
the country of origin of the goods
a full description of goods
the quantity of goods
the estimated amount of duty to be paid (for imports)
The value of the goods.

Importance of bill of entry

A bill of entry is important for the following reasons:
It is a confirmation of the total value dutiable.
It is a request for the payment of duty from the importer.
It is a source document for drawing up a balance sheet {or used for statistical
purposes when calculating the balance of payments).
It is a receipt for customs officials (for duty paid by the importer).
It is required by an importing country.
Intermediaries in foreign trade
What is an intermediary?
An intermediary is a middleman, an agent, or a broker, who acts for and on behalf of
the principal who authorises them to negotiate the price of commodities and to bring
the third party (either the buyer or seller) into a legal contractual relationship.
An agent receives a commission for services rendered, which is based on a percentage
of sales.
Brokers
Brokers work in foreign trade as agents.
Brokers bring buyers and sellers into contact.
They buy and sell goods on behalf of their principal, who are either manufacturers or
exporters.
They do not possess the goods they sell but sell goods by sample or description.
They buy and sell goods in the names of their principals.
They do not deliver the goods they sell.
They have no insurable interest on the goods they buy and sell.
They receive brokerage as commission based on the total value of sales.
They do not enter contracts with either buyers or sellers.
Factors
Factors are agents in international trade
Factors possess the goods they sell.
They collect goods from the principal to sell.
They sell goods in their own names.
They deliver goods to their customers.
They have insurable interest on the goods they sell.
They may sell goods on credit.
They provide warehousing and equipment for the handling of goods.
They collect and forward payments to their principals, less their commissions.
Del-credere agents
Del credere agents work in foreign trade as intermediaries.
They possess the goods they sell.
They have insurable interest on the goods in their possession.
They sell goods on behalf of their principals.
They sell goods in their own names.
They deliver goods to their customers.
They may borrow loans from financial institutions using the goods as collateral
security.
They sell goods on credit to their customers.
They guarantee payments to their principals, whether or not the goods have been sold.
They receive higher commission than other agents for guaranteeing payments and
bearing risks of non-payment by customers.
Forwarding agents (or freight forwarders)
Forwarding agents work in foreign trade as intermediaries.
Forwarding agents assist trade by distributing goods from the exporter to the importer.
They collect goods from the consignor's or exporter's premises using their transport.
They transport goods to their warehouses.
They store goods in their bonded warehouses.
They send goods to the consignee or importer.
They provide facilities for export packaging of the goods.
They arrange insurance for the goods on behalf of exporters.
They clear goods with customs authorities on behalf of importers.
They complete the necessary documents used when goods are transported by air or
ship e.g. an air way bill or a bill of lading.
They book space for the goods on a ship or aeroplane.
They provide information exports and import formalities and for transport services
available.
They ensure that goods art safety and speedily delivered to tile importer or consignee
by instructing their representatives over-seas for the final delivery of good
They earn or charge a fee for the work they perform.
Merchants
Concerned with either importing or exporting goods.
Merchants possess the goods that they buy or sell.
As importers, they buy goods abroad and sell them locally.
As exporters, they buy goods from local manufacturers and sell them overseas.
They are either wholesalers or retailers,
They also assist trade by distributing goods to local and foreign markets.
Export merchants
Export merchants perform me functions of traders (wholesalers or retailers).
They buy goods in bulk from local manufacturers.
They sell these goods abroad.
They buy and sell goods in their own names.
They sell goods at a profit.
They pay cash immediately for goods bought.
They reduce tile manufacturer’s problems of exporting goods because they transport
goods on their own from manufacturer's factories
Store goods in their warehouses
Handle customs clearance for goods to be exported
Advertise the goods abroad.
They provide local manufacturers with information on market conditions overseas,
that is, on how well goods are selling abroad.
Import merchants
Import merchants act as traders in foreign trade and perform these functions.
Import merchants buy goods in bulk from manufacturers abroad.
They sell these goods locally to either wholesalers or retailers.
They pay cash promptly for the goods they buy overseas.
They buy and sell goods using their own names.
They sell these goods to earn a profit.
They warehouse these goods in their bonded warehouses.
They handle customs clearance for imported goods.
They pay customs duties for imported dutiable goods.
They advertise the goods locally.
They inform or advise manufacturers overseas of goods with a fast rate of turnover
locally
Balance of payments
This is a summary of a country’s transactions with the rest of the world for a specific time, it
is also referred to as BOP. There are two different set of accounts namely:
Capital account
Current account
Capital account
It is an account that relates to financial instruments.
Records the purchase and sale of Assets
Includes exports - borrowing from foreign countries + direct foreign investments by
foreign countries
Includes imports - lending to foreign countries + direct investments in foreign
countries
Current account
Transactions relating to goods
Services investment income
Current transfers
Records trade in goods and services
Includes Total exports [goods + service exports] - total imports [goods + service
exports]

Visible trade
This is trade for tangible items [goods] such as:
Tobacco
Maize
Clothes
Cars
Machinery
Balance of trade
The visible balance is also known as balance of trade which is calculated by deducting visible
imports from visible exports. If exports are in excess of imports there is a favourable balance
of payments or surplus but if imports are in excess of exports we get an unfavourable balance
of trade or deficit
Zimbabwe as a country is involved in trade and produced the following data as trade figures
for 2018
Value of good s exported $200 billion
Value of gods imported $ 150 billion
Required
Calculate balance of trade for Zimbabwe
Tangible exports – tangible imports
200 billion – 150 billion
50 billion
Invisible trade
This is referred to as trade of intangible items such as services offered to other countries and
offered to a certain country by other countries, this is calculated by deducting intangible
imports from intangible exports. If exports are in excess of imports there is a favourable
balance of payments or surplus but if imports are in excess of exports we get an unfavourable
balance of trade or deficit
Zimbabwe as a country is involved in trade and produced the following data as trade figures
for 2018
Value of tourism to Zimbabwe from other countries $60 billion
Value of tourist from Zimbabwe to other countries $80 billion
Value of insurance services provided by foreign to Zimbabwean companies $30 billion
Value of transport services provided to foreign companies by Zimbabwean companies $20
billion
NB// services to other countries are exports whilst services from other countries are imports

Intangible exports – intangible imports

[60+20] billion – [80+30] billion
80 billion – 110 billion
- 30 billion
Balance of payments [BOP]
This is the difference between total exports and total imports, where total exports is [tangible
+intangible exports] less total imports [tangible +intangible imports]
Total exports [tangible +intangible exports] - total imports [tangible +intangible imports]
[200+60+20] billion – [150+80+30]
280 billion – 260 billion
20 billion
There is an alternative method for calculating BOP, which is addition of visible trade and
invisible trade figures
50 billion + [- 30 billion]
20 billion
Exchange rates
The foreign exchange rate is:
The rate at which the currency of one country is exchanged for the currency of
another country
The value of one country's currency in terms of another country's currency
The price of one country's currency expressed in another country's currency.
The exchange rate of the American dollar (US dollar) is the price (or charge) of the
dollar in terms of other currencies.
The exchange rate:
Tells you what a dollar is worth in relation to other foreign currencies
Determines how much of one currency you can exchange for another.
Ways to correct a balance of payments deficit
The government of Zimbabwe may impose some measures to correct its balance of payment
position whenever a deficit occurs. The government should reduce its imports, in this way
reducing the outflow of foreign currency, by:
substituting imports or replacing them with locally produced goods
subsidising local industries
devaluing the local currency, which makes imports more expensive
Rationing or reducing foreign currency allocation to importers
Controlling new import licences and refusing to renew expired licences, which
reduces the number of importers and consequently reduces imports
Charging (high) customs duties, which make imports more expensive, discouraging
the consumption of imported goods
Enforcing quotas, which limits the quantities of goods that may be imported
Enforcing trade embargoes, which completely bans trade with other countries and
consequently reduces imports to zero.
The government should increase exports, to increase inflow of foreign currency by:
introducing or increasing excise duties on specific products, such as tobacco or liquor,
which discourages domestic consumption and makes available more goods for export
Devaluation of the local currency, which makes exporting cheaper
subsidising exports to make local goods cheaper on foreign markets
Attracting foreign buyers by inviting them to take part in trade fairs and exhibitions
Attracting foreign direct investment to increase the inflow of foreign currency
Negotiating debt cancellation with its creditors (the International Monetary Fund,
World Bank and African Development Bank) to reduce the outflow of foreign
currency
Borrowing from the International Monetary Fund to pay off debts
Giving tax concessions to exporters, which reduces export costs for the exporter; this
increases exports by making exporting cheaper
Establishing export promotion programmes, such as the Zimbabwe Export Promotion
Programme (ZEPP), to assist exporters to take part in trade fairs by advertising locally
produced goods
Establishing export processing zones (EPZs) to expedite the process of exporting
goods
Running down the gold reserves at the Reserve Bank of Zimbabwe, such as selling
gold reserves in order to raise foreign currency