1. A
  2. B
  3. C
  4. D
  5. E
  6. F
  7. G
  8. H
  9. I
  10. J
  11. K
  12. L
  13. M
  14. N
  15. O
  16. P
  17. Q
  18. R
  19. S
  20. T
  21. U
  22. V
  23. W
  24. X
  25. Y
  26. Z


Advising bank

Advising bank is the bank that advises the letter of credit at the request of the issuing bank.


The transfer of rights and/or obligations under a contract from one party to another. With respect to an export credit guarantee this most often applies where an exporter assigns the benefits of insurance it has obtained from a credit insurer to a bank as security for financing.

Aval, Avalise

A guarantee by a third party (normally a bank) to assume the burden of a debt in the event of a default. An aval usually takes the form of an endorsement "per aval" and signature from the bank on the back of a bill of exchange or promissory note. This then puts the bank broadly into the position of an issuing bank under a letter of credit. The legal enforceability of an aval may vary from country to country but should always be checked in advance. Such bills and notes are widely used in forfaiting.


Back-to-back credit

A transaction in which the existence of one letter of credit serves as collateral/security to support the issuance of a second, though independent letter of credit (called the counter-credit).

Basis point (bp)

One-hundredth of one percentage point (1bp equals 0.01%). One basis point is the smallest measure used to quote yields on bills, notes, and bonds.

Berne Union

The international forum for export credit agencies has 50 member companies and one observer company from around the world. They exchange ideas and experiences, and draw up general conditions for the framework governing the activities of export credit agencies.

Bid bond

A bond or guarantee, normally issued by a bank on behalf of an exporter in favour of a buyer that provides that if an exporter submits a bid or tender and is awarded the contract, but then fails to conform or to comply with the terms of its tender, the bond may be called. A bid bond gives the buyer some financial assurance that bidders will comply with the terms of their bids. In theory, the calling of the bond should compensate the buyer for the costs of the aborted tender and of re-tendering and re-awarding the contract.

Bill of exchange

An unconditional written order that binds one party to pay a fixed sum of money to another party on demand or at a predetermined future date. For example, a bill of exchange is drawn up by the exporter and accepted (and signed) by the importer, who then is responsible for paying on presentation of the bill at the appropriate time. When the bill bears no date, it is normally referred to as a sight bill. Where credit is involved, bills are variously referred to as time bills, tenor bills, or usance bills. Once accepted, bills can be sold or discounted. Bills accepted by companies with a high credit rating or that have the aval of a bank are often used in forfaiting.

Bill of lading

A very important document in international trade that provides evidence of receipt of goods by the shipper, gives details of the conditions of transport and destination, and, importantly, normally conveys title to the goods.


A financial guarantee, issued by a bank or insurance company, allowing the beneficiary to draw down if the exporter has defaulted, eg if the goods and services are unsatisfactory. Most bank bonds are "on-demand" which means the buyer does not need to justify or provide evidence of his dissatisfaction. See also bid bond, performance bond.

Buyer credit

An arrangement in which an exporter enters into a contract with a buyer, which is financed by means of a loan agreement between a bank in the exporter's country and a bank in the buyer's country. The export credit agency in the exporting country typically provides a guarantee to the lending bank. The exporter can draw on the loan as the work is done and accepted. The international buyer / bank makes loan repayments to the lending bank in accordance with an agreed repayment schedule commencing after the delivery of the goods or services. The key benefit of a buyer credit is the Isabella clause.


CFR (Cost and Freight)

An Incoterm that represents an exporter's obligation to pay for the cost of transport to the port of destination. The buyer pays for the insurance and transportation of the goods from the port of destination to its factory. The passing of title (ownership and risk) occurs when the goods pass the ship's rail at the port of shipment, which means that this term cannot be used for airfreight or land transport and also is inappropriate for most containerised sea shipments (the Incoterm CPT is the appropriate one for these).

CIF (Cost, insurance and freight)

An Incoterm that represents an exporter's requirement to cover the cost of transport to the port of destination, and to provide appropriate marine insurance coverage. The passing of title (ownership and risk) occurs when the goods have been delivered to the marine carrier or have been delivered on board the shipping vessel, depending upon the terms of the contract.

CIP (Carriage and Insurance paid to)

An Incoterm that is the same as CPT, except that the exporter also pays for the insurance. The passing of title (ownership and risk) occurs when the goods have been delivered into the custody of the first carrier, which means that the buyer bears all risk and any additional costs occurring after the goods have been so delivered.

CIRR (Commercial Interest Reference Rate)

The CIRR rates are minimum interest rates fixed on a monthly basis in accordance with an agreement between the OECD countries. Public authorities may not support export credits at lower rates than the CIRR.

CPT (Carriage paid to)

An Incoterm that means the exporter pays for the freight of the goods to the named destination. The buyer pays for the insurance. The title (ownership and risk) transfers when the goods have been delivered to the custody of the first carrier, and not at the ship's rail. Accordingly, CPT can be used for all modes of transportation, including multimodal transport.

Cash flow

The cash being received and spent by a business or project during a defined period of time.

Commercial risk

One of the two main categories of risk covered by credit insurers (the other is political risk). Commercial risks are linked to a corporate buyer or bank's ability and willingness to pay, and may include insolvency or bankruptcy, or unwillingness to take delivery of the goods (i.e. repudiation).

Commitment fee

A per annum fee applied to undisbursed balances that lenders are committed to lend; the fee is charged until the end of the availability period.

Confirmed letter of credit

A letter of credit, issued by a foreign bank, with validity confirmed by another bank. An exporter whose payment terms are a confirmed letter of credit is assured of payment even if the foreign buyer or foreign bank defaults.


The person / company / bank to which the goods are delivered - usually to the importer or the Collecting Bank.


Shipment of goods.


Also called shipper, it's the person / company who sends goods by ship, by land or air.

Credit information

Information supplied by a credit agency on the economic circumstances of the buyer/borrower. Applications for an NZECO guarantee covering commercial risks should be accompanied by credit information.

Credit insurance

Credit insurance protects the insured party (usually the seller), in exchange for a premium, against a range of risks that result in non-payment by the buyer. Under an export credit guarantee, both commercial and political risks are normally insured.

Credit period

The period from the time of delivery or acceptance of goods, or from the commissioning of the project, until repayment is complete. Maximum credit periods are set for repayment periods in respect of certain countries and/or industries, in accordance with the OECD Consensus Arrangement and other international guidelines.

Credit rating

Credit ratings are established and monitored by rating agencies (i.e. Standard & Poors), which consider a variety of factors to determine a company's health, financial stability and its investment value. Ratings are a measure of risk—an assessment of a company's ability and willingness to repay loans in full and on time. The higher the credit rating, the higher the level of confidence in repayment—and the lower the borrowing interest rate the company has to pay on a loan.


DDP (Delivered Duty Paid)

This Incoterm represents an exporter's maximum obligation. It means that the exporter pays for all costs and bears all risks until the goods have been delivered to the buyer's premises (or other named destination). This term can be used irrespective of the mode of transport.

DDU (Delivered Duty Unpaid)

An Incoterm that represents the exporter's obligation to pay for all transportation costs and to bear all risks until the goods have been delivered at the place of the named destination. However the exporter is not responsible for the payment of any duty / import clearance.

DEQ (Delivered Ex Quay)

An Incoterm that means the same as DES, except that the passing of title (ownership and risk) between export and buyer does not occur until the goods have been unloaded at the port of destination.

DES (Delivered Ex Ship)

An Incoterm that represents an exporter's requirement to cover the cost of transport to the port of destination, and to provide appropriate marine insurance coverage. The passing of title (ownership and risk) does not occur until the ship has arrived at the port of destination, but before the goods have been unloaded.

Debt leverage

The ratio of borrowed money to total capital.


The failure of a buyer or borrower (or its guarantor) to make contractually due payments, whether of principal or of interest. The term can also refer to a situation where a contractor or exporter is in breach of a contract.


An accounting and financial term used to describe the actual payout or drawdown of cash under a loan agreement (i.e. buyer credit). Most projects or capital goods contracts of any size provide for exporters to receive payments while their construction or production is in progress (these are called progress payments). These payments are usually made according to an agreed Disbursement Schedule and on the basis of qualifying certificates of some kind, showing that the work has been completed satisfactorily.

Documentary Discrepancy

Occurs when one or more of the terms or conditions stipulated in a letter of credit have not been met. In the event of discrepancy, the buyer may refuse the shipment, or waive the discrepancy and proceed with the transaction.


EFIC (Export Finance and Insurance Corporation)

EFIC is the official export credit agency of the Australian Government (http://www.efic.gov.au).

Escrow account

A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.


The Eurozone comprises the countries (currently 19) that are members of the European Economic Monetary Union (EMU) and use the euro as their national currency. It excludes Kosovo and Montenegro, which use the euro, but are not members of the EMU. The countries are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.


The percentage of loss incurred which is not compensated by an export credit guarantee, usually between 10 – 15% in the case of commercial risks and 5 – 10% for political risks.

Export Financing

The financing that an exporter requires to help them run their business and to provide medium to long term credit. The NZECO does not provide this financing, which needs to be sourced through the exporter's internal financing and/or their shareholders, bank or other financiers. Having sufficient financing in place is critical to the success of any export credit transaction.

Export credit agency (ECA)

Agencies that provide insurance and/or guarantees for export transactions. They are usually owned by and/or benefit from government support.

Export credit guarantee

Insurance against loss in connection with export credits.

Export-Import Bank (Ex-Im Bank)

EX-IM Bank is the official export credit agency of the United States Government.


FAS (Free alongside ship)

An Incoterm which signifies that the exporter pays for transportation of the goods to the port of shipment, at which time title (ownership and risk) passes to the buyer. The buyer pays loading costs, freight, insurance, unloading costs and transportation from the port of destination to its factory.

FCA (Free Carrier)

An Incoterm that covers the situation where an exporter delivers its goods into the custody of the first carrier, and this is where title (ownership and risk) passes from exporter to buyer. The buyer pays for the transportation.

FOB (Free on board)

An Incoterm that represents an exporter's requirement to deliver the goods to the ship, airline or other agreed mode of transport, at which time title (ownership and risk) passes to the buyer. The exporter pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays freight, insurance, unloading costs and transportation from the port of destination to its factory.


The cash purchase of a company's accounts receivables (in the form of invoices) at a discount. The financier purchasing the receivables is called a factor, and is usually a specialised financial services company. The factor then directly receives the buyer's repayment. Often the factor has the right of recourse back to the seller in the event of the buyer's default or delayed payment. Some factors operate on a non-recourse basis (i.e. they assume the risk of non payment), although the costs to the seller are higher due to the greater risks assumed by the factor. The primary difference between factoring and forfaiting is that factoring is usually for short-term receivables (under 90 days) and more related to receivables against commodity sales.


The cash purchase of an exporter's receivables (bills of exchange or promissory notes, or simply issued invoices, which the exporter is selling on an open account basis) at a discount. The forfeiter – the purchaser of the receivables – becomes the entity to whom the importer is obliged to pay its debt. By purchasing these receivables - which are usually guaranteed by the importer's bank - the forfaiter frees the exporter from credit and from the risk of not receiving payment from the importer who purchased the goods on credit. Unlike factoring, forfaiting is normally used for receivables against payments which are due over a longer term (90 days to up to 7 years).



An entity that guarantees repayment of a debt obligation under a contract or loan agreement. This can be a government, a bank, a parent company, or an individual.

Guarantee amount

The maximum financial sum the NZECO is responsible for under a guarantee commitment, normally the maximum financial loss minus excess (5% for political risks and 10 to 20% for commercial risks).



A set of international commercial terms defining the costs, obligations and passage of title of a shipment of goods (e.g. FOB – Free on Board; CIF – Cost, Insurance and Freight; DES – Delivered Ex Ship).

Indicative terms

The likely commercial terms upon which a bank will lend, subject to its internal credit approval or other conditions. It is not a firm offer to lend or arrange a loan.

Irrevocable Letter of Credit

A letter of credit in which the bank guarantees that the exporter will be paid if the required documents are presented, and the terms and conditions complied with. An irrevocable letter of credit cannot be changed or cancelled without the consent of all parties involved.

Isabella clause

A standard feature of a Buyer credit, it is a clause under a supply contract that separates the obligations, rights, and responsibilities under the contract from those under the associated loan agreement. It means that the buyer is legally obliged to repay the loan even in the event of the buyer disputing the delivery of the goods or services under the terms of the supply contract. In other words, problems with the contract or project do not give the borrower any right to default or delay payment on the loan or to suspend repayments.

Issuing bank

Issuing bank is the bank that issues the Letter of credit at the request of an applicant and undertakes to honour a complying presentation which is in accordance with the terms and conditions of the letter of credit.



The “London inter-bank offer rate” is the rate of interest at which banks borrow funds, in marketable size, from other banks in the London inter-bank market. In other words, LIBOR is the international rate at which the world's most preferred borrowers are able to borrow money. Accordingly, LIBOR is also used as a benchmark rate upon which rates for less preferred borrowers are based. For example, a large company with a very good credit rating may be able to borrow money for one year at LIBOR plus 5 basis points.


An agreement in which the lessee gains a long term contract for the use of an asset, and the lessor is assured of regular payments for a specified number of years. The NZECO can provide guarantees for financial lease transactions (but not for operational leases).

Letter of credit (LC)

A document issued by a bank guaranteeing payment, on behalf of a buyer of goods, when all the conditions stated in the letter have been met. The importer's bank is often named “the issuing bank” (or “the opening bank”), while the bank in the exporter's country is named “the advising bank” and the exporter is “the beneficiary”. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The issuing bank also acts on behalf of the buyer by ensuring that the exporter will not be paid until the bank receives a confirmation that all the terms in the letter of credit have been fully met. Therefore, it is important that exporters carefully read all the conditions and requirements, as these can sometimes be onerous. Your bank's Trade Finance Manager will be proficient in the nuances within letter of credit usage.

Local costs

The expenditures incurred for goods or services (excluding any commission payable to the exporter's agent) in the buyer's country that are necessary either for the execution of the exporter's contract or for completing a project of which the exporter's contract forms a part. The proportion of local costs that can be supported on credit terms in an export transaction must not exceed the amount of the advance deposit.

Long term credit

Credit that is granted for a period longer than five years.

Maximum permitted repayment terms

Repayment terms defined by the Berne Union and the OECD Consensus Agreement, depending on the amount of the export contract, categorisation of countries (categories I and II) and the type of goods and services to be exported.


Medium term credit

The NZECO recognises medium term credit as a credit period granted between one and five years. Under the OECD Consensus Agreement, medium term credit is that with a credit period of two to five years.



The act of replacing one participating member of a contract with another, or the substitution of a new legal obligation for an existing obligation. All rights, duties, and terms are transferred to the new party upon consent of all parties affected.



The Organisation for Economic Co-operation and Development (OECD) is an international organisation of countries that share a commitment to democratic government and the market economy. It currently has 34 member countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Japan, Italy, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovania, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

OECD Consensus Agreement

Officially known as the "Arrangement on Guidelines for Officially Supported Export Credits", this is a “Gentlemen's Agreement” among most of the OECD members. The Arrangement sets out the most generous terms and conditions that may be allowed for export credits with a repayment term of two years or more. These include minimum premium levels, rules around deposit and repayment, and maximum credit periods. The purpose of this Arrangement is to limit and eventually eliminate distortions caused by the provision of export credit.


The individual, business or organisation name in a surety bond in whose favor the obligor promises performance. The person, firm or corporation protected by the bond.


In a surety bond, the principal or party bound by the obligation. Under a surety bond, both the principal and the surety company are obligors, as the surety must respond should the principal default.

Open account

Where goods are shipped to a foreign buyer and payment is made on the basis of invoices, usually in cash. Because there are no bills of exchange or promissory notes, the exporter has no guarantee of payment and therefore this trade arrangement is most commonly used where the exporter and buyer have a strong, long-standing trading relationship.


Pari passu

Means “at an equal rate”, and can refer to financial instruments that rank equally in right of payment with each other and with other instruments of the same issuer. It is also often used in bankruptcy proceedings where creditors are said to be paid “pari passu”, meaning each creditor is paid pro rata in accordance with the amount of his claim.

Paris Club

A forum that establishes agreements relating to the rescheduling of debt for countries experiencing payment difficulties. At Paris Club meetings, the debtor country and the creditor countries involved negotiate a framework agreement that outlines a rescheduled timetable of debt repayments.

Performance bond

A facility normally issued by a surety company or commercial bank to a buyer to guarantee that the exporter will fully implement the terms of its contract. Performance bonds are normally conditional; that is, they can usually only be called if the buyer can demonstrate (in accordance with the terms of the facility) breach of contract by the exporter.

Political risk

One of the two main categories of risk covered by credit insurers (the other is commercial risk). Political risks are linked to non-payment of an export transaction due to financial and political conditions in the buyer's country. These may include acts of war or civil disturbances, imposition of laws that prevent the transfer of payments, cancellation of your buyer's import permits, or default of a sovereign buyer.

Pre-shipment period

The pre-delivery period between receipt of the order until the shipment (or of acceptance by the buyer) of the capital goods.


The sum charged by the NZECO for the issue of a guarantee.


A person who has authorised another (agent) to act on his or her behalf.

Project financing

A loan structure where a bank grants finance to a joint venture company that has been formed to implement a specific project. In return, the bank gains primary access to the future cash flow, assets and contracts of the joint venture company. The forecasted earnings of the project thus provide the essential security for the lender.

Promissory note

A written document, drawn up by the importer in favour of the exporter, which contains an unconditional promise to pay a definite sum of money on demand or on a specified future date. The only difference between a promissory note and a bill of exchange is that the maker of the note pays the exporter personally, rather than ordering a third party to do so. When endorsed by the exporter, and if the buyer is creditworthy, a promissory note can be used in forfaiting.

Public Information (PI) Rating

A credit rating with a 'pi' subscript signifies that the rating was based on an analysis of published financial information, as well as additional information in the public domain. They do not reflect in-depth meetings with the company's management and are therefore based on less-comprehensive information than ratings without a 'pi' subscript.



A form of insurance where one insurance institution (e.g. an export credit agency) assumes part of the risk initially assured by insurance institution. Reinsurance serves several functions, including as a means of spreading risk.


The refusal of a buyer to accept goods for which it has contracted (provided the non-acceptance is not caused by a breach of contract by the exporter).



The NZECO may seek a security to ensure that, in the event of a buyer's default, it will be repaid or appropriately compensated. Forms of security include: a bank guarantee; a guarantee from a parent company; a guarantee from the Government of the buyer's country; or mortgage on the goods to be financed (e.g. on aircraft).

Security debt

A debt obligation backed by the pledge of assets or other forms of security.

Shipping documents

These documents relate to the circumstances of conveyance and delivery of goods, and their possession normally represents title to those goods. The stage at which these documents are handed over to the buyer is important, not least in terms of whether payment is made at this stage or whether the documents are to be exchanged for some form of promise to pay (e.g. a bill of exchange or promissory note).

Short term credit

Credit that has a maturity of less than 360 days.

Sight / Term credit

A letter of credit may be issued with a variety of "tenors" which determine the timing of payment. A "sight credit” is payable upon receipt at the counters of the appropriate party (allowing reasonable time for verification of documents), whereas a "term credit” involves payment at some pre-agreed future date e.g. 60 days after sight; or 30 days after the shipment date.

Sovereign guarantee

An irrevocable guarantee by a Government that commits itself to full payment of an export transaction. This will be required by the NZECO in cases involving a public sector buyer which does not have significant independent sources of revenue outside the central government budget and which does not have independently audited financial statements.

Starting point of credit

For most export transactions the credit period starts at the time of delivery of goods (although there may be exceptions for some industries). In connection with sales of capital equipment for turnkey installations the credit period can begin from the day of final delivery. If the exporter has responsibility for assembling and commissioning the equipment according to the agreement, the credit period can begin on the day it is ready for commissioning.

Supplier credit

Credit granted by an exporter to its international buyer as part of its supply agreement. The NZECO can provide the exporter with supplier credit insurance covering the risk of default on repayment of a medium-term credit.

Surety bond

A surety bond guarantees the performance or financial obligations of others, and they are issued by a licensed surety company. In the construction industry, for example, surety bonds are provided to the construction project owner (the obligee) by the surety company to assure that the contracted work will be completed by the contractor (the principal), and that protection will be provided if it is not. Surety bonds used in construction include bid, performance, and payment bonds as well as supply and maintenance bonds. The NZECO may cover any surety bond that falls within the criteria for the Surety Bond Guarantee product.

Surety company

A company that is licensed to write a surety bond. A surety company's primary duty is not to lend the contractor money. Instead, it uses its financial resources to guarantee a contractor's commitment and ability to complete a contract. As part of its pre-assessment, the surety company takes an in-depth look at a contractor's entire business operations (experience, management capability, equipment, work in progress), financial strength and credit history in order to be satisfied that the contractor is capable of completing the project before issuing a bond. When the surety company does issue a bond, and should the contractor experience difficulties on a project or is in a default situation, the surety company may take several actions. These depend on the options contained in the particular bond form and may include: providing finance to the original contractor; or providing support to ensure project completion; or arranging for a new contractor to complete the project; or paying the cost of completion up to the penal sum of the bond.

Syndicated loan

A very large loan in which a group of banks work together to provide funds for one borrower. There is usually one lead bank that takes a small percentage of the loan and syndicates the rest to other banks.



The term or life of a contract. Often used in relation to the term of a letter of credit or a bill of exchange.

Term Sheet

A contractual document, typically issued by a bank, that outlines the general terms and conditions of a financing agreement.


Unconditional contract

Agreement where all conditions have been filled for the contract to come into force.


Venture capital

Financing provided (usually in higher-risk ventures) in exchange for an equity stake in a business or project. This form of raising capital is popular among new companies, or ventures, with limited operating history, which cannot raise funds through a debt issue.


Working capital

The cash required to fund inventories and accounts receivables. Accounting definition is current assets less current liabilities.