TOPIC SIX

DOCUMENTATION IN GLOBAL BUSINESS

INTRODUCTION

Documentation lies at the heart of all international trade transactions. It provides buyers and sellers
with an accounting record; shipping and/or logistics firms with instructions of what to do with
freight; countries of export and import with regulatory compliance, census and taxation
information; and banks with instructions and accounting tools for collecting and disbursing
payments. This chapter provides the reader with an explanation of the types of international trade
documentation, examples of the most common documents used in all facets of international trade
for all nations on earth. The explanations and examples contained in this chapter are intended to
give the reader sufficient familiarity and understanding of the vast majority of international trade
documentation so as to ease the cross-border trading process in all countries of the world.

In global procurement, documentation plays a crucial role in ensuring smooth and efficient
operations.

Documentation refers to the process of creating, managing, and organizing various types
of written records and information related to procurement activities.

It serves as a formal record of transactions, agreements, and processes involved in global

procurement, enabling transparency, accountability, and legal compliance.

The Purpose of Documents in Global Business

Documents serve a key role to each party involved in global business.

 Documents provide an accounting record of a transaction,

 Documents provide a receipt for goods shipped,
 Documents provide the means for export clearance of the goods,
 Documents provide information and instructions to the many individuals, companies and
governmental agencies who transport, handle, or inspect the shipment.
 Documents provide instructions and accounting tools for collecting and disbursing
payments.
  Documents provide a means of evaluating risks, valuing a shipment and tracing the point
of loss in a coverage claim.
 Documents provide necessary proof of the right to transport.
 Documents provide evidence that the goods imported will not harm the health and safety
of its citizens.
 Documents provide proof of ownership of goods at any time and place throughout the
transaction.

Categories of Documents used in Global business

There are several broad categories of documents used in global business. A category indicates
either that the documents are issued by a particular group (e.g. a shipping or logistics company) or
are required by a particular entity (e.g. a bank or customs authority). In many cases, documents
issued by one entity (e.g. the bill of lading issued by a shipping or logistics company) may be
required by more than one entity (e.g. the importer, the country of import customs authority, etc.).
In other cases, a single entity may both issue documentation as well as require documentation from
other entities (e.g. banks issue documents related to letters of credit, but may require a number of
specific documents from both the importer and exporter).

The following is a brief summary of the broad categories of global business documentation. Each
will be treated in detail as follows.

A. TRANSACTION DOCUMENTS

These are the documents the buyer and seller generate to form the basis of their agreement to sell
and purchase specific goods under specific terms and conditions. The quantity and formality of
this type of documentation is greatly influenced by the nature of the relationship of the buyer and
seller as well as the goods sold.

■ Transaction documents include the letter of inquiry, request for proposal (RFP), proposal, letter
of intent, purchase order, contract of sale, pro-forma invoice, and commercial invoice. Not all
transactions require each of these documents. In the simplest transactions, the buyer and seller
might speak by telephone and agree on terms, after which the seller simply prepares a commercial
invoice. The following are the transaction documents used in global business
 1. Request for Proposal (RFP)

An RFP is a formal document issued by a buyer to invite suppliers to submit a proposal to fulfill
a specific project or requirement. It outlines the buyer's needs, expectations, evaluation criteria,
and other relevant information to solicit competitive proposals. Example, a government agency in
Canada releases an RFP for the construction of a new infrastructure project, inviting construction
companies to submit proposals outlining their approach, timeline, and cost estimates for the
project.

2. Proposal/Bid/Quotation

A proposal/bid/quotation is a formal document submitted by a supplier or service provider in

response to an RFP or other similar requests. It outlines the supplier's understanding of the buyer's
requirements, offers a solution or service, and presents pricing and terms for consideration.
Example, a software development company submits a proposal to a financial institution in
Australia, detailing their proposed software solution to streamline the institution's loan
management processes, along with the associated costs and implementation plan.

3. Purchase Order

A purchase order (PO) is a document issued by a buyer to formally request the purchase of goods
or services from a supplier. It includes details such as the item description, quantity, agreed-upon
price, delivery terms, and payment terms. Example, a retailer in the United Kingdom sends a
purchase order to a manufacturer in Turkey, specifying the quantity, sizes, and prices of the
clothing items they want to purchase for their upcoming season.

4. Contract of Sale

A contract of sale is a legally binding agreement between a buyer and a seller that outlines the
terms and conditions of the sale of goods or services. It includes details such as the parties
involved, item description, price, payment terms, delivery terms, and any warranties or guarantees.

Example, an electronics distributor in Japan and a retailer in the United States enter into a contract
of sale for the purchase and shipment of a specific quantity of smartphones. The contract includes
details such as the agreed-upon price, shipment method, and payment terms.
These transaction documents play essential roles in initiating, formalizing, and completing
international trade transactions, ensuring clear communication, legal compliance, and effective
business relationships.

5. Commercial Invoice

A commercial invoice is a crucial document used in global business transactions. It is prepared by

the exporter (seller) and provides details about the goods being shipped, their quantities, prices,
and terms of sale. The invoice serves as evidence of the agreement between the buyer and the seller
and is used for customs clearance, calculating customs duties, and as a basis for payment.

Suppose a company based in the United States is exporting electronic goods to a buyer in Germany.
The exporter prepares a commercial invoice, which includes details such as the description of the
goods (e.g., quantity and model numbers), unit prices, total value, payment terms (e.g., payment
due within 30 days), and shipping information. The commercial invoice is used by customs
officials in both countries to verify the contents and value of the shipment and to assess customs
duties and taxes.

TRANSPORT (SHIPPING) DOCUMENTS

These are the documents issued by the shipping line, airline, railroad, barge operator, international
trucking company, freight-forwarder or Logistics Company as a receipt and contract for carriage
of the goods to the stated destination. These organizations also issue insurance and inspection
certificate(s).

■ Transport/shipping documents may include licenses and permits, a commercial invoice, bill of
lading, certificate of origin, packing list, and inspection certificate(s). These documents ensure
compliance with regulations, provide necessary information, and serve as proof of the transaction.
The following are the export documents used in global business;

1. Licenses and Permit

Licenses and permits are official authorizations granted by the government or relevant authorities
providing authority to transport the goods to the specified country. These documents regulate and
control the export of certain goods, especially those with strategic importance or subject to
transport restrictions. The specific requirements for licenses and permits vary from country to
country and depend on the nature of the goods being transported.

Example: Let's say a company based in the United States intends to export high-tech military
equipment to a foreign country. Before exporting, the company needs to obtain an export license
from the U.S. Department of State's Directorate of Defense Trade Controls (DDTC). This license
ensures compliance with the International Traffic in Arms Regulations (ITAR) and verifies that
the export is authorized by the U.S. government.

2. Commercial Invoice

A commercial invoice is a document issued by the seller that provides a detailed description of the
goods being shipped, their value, and the terms of the sale. It serves as evidence of the transaction
between the buyer and the seller, and it includes important information for customs clearance, such
as the parties involved, payment terms, and shipping details.

Example: Suppose a clothing manufacturer in India exports a shipment of garments to a buyer in

the United Kingdom. The commercial invoice issued by the Indian exporter will include details
such as the description of the garments (e.g., quantity, type, and size), unit prices, total value of
the shipment, payment terms (e.g., payment method and due date), and shipping information.

3. Bill of Lading

A bill of lading (B/L) is a legal document issued by the carrier or their agent, such as a shipping
line or freight forwarder. It serves as a contract of carriage and receipt of goods, acknowledging
that the carrier has received the goods from the shipper and is obligated to deliver them to the
consignee at the destination. The bill of lading also contains essential details about the shipment,
such as the description of goods, quantity, weight, and packaging.

Example: Let's consider a scenario where a Brazilian coffee exporter ships a container of coffee
beans to a buyer in the United States. The bill of lading issued by the shipping line will specify the
details of the shipment, including the quantity of coffee beans, container number, vessel name,
departure and arrival ports, and the terms of shipment (e.g., "freight prepaid" or "freight collect").

Types of Bill of lading are as follows;

1. Airway Bill (AWB)

An airway bill is a transport document used in air freight shipments. It is issued by the airline or
the freight forwarder and serves as a contract of carriage and a receipt for the goods. The airway
bill includes information such as the shipper's and consignee's names and addresses, flight details,
description of the goods, and the terms of delivery. Unlike a bill of lading, an airway bill is not a
document of title and does not require surrender for the consignee to take possession of the goods.

Example: A fashion retailer in Italy exports a consignment of clothing to a customer in Australia.

The airline issues an airway bill, which outlines the details of the shipment, including the flight
number, departure, and arrival airports, and the goods' description. The airway bill accompanies
the goods throughout their journey and allows the consignee to receive the goods upon arrival.

2. Sea Waybills

Sea Waybills are consignment notes for sea freight. They act as a receipt for the goods “in apparent
good order and condition” and are also evidence of a contract between the exporter and the
carrier(s). The carrier completes the form. Unlike Bills of Lading, Sea Waybills are not documents
of title, so that the holder does not necessarily have ownership of the goods. They are increasingly
used instead of Bills of Lading: they are simpler, which helps, e.g. when only short sea crossings
are involved, or for regular shipments to established customers whose creditworthiness is not in
doubt.

4. Certificate of Origin

A certificate of origin (COO) is a document that indicates the country in which the goods being
exported were produced, manufactured, or processed. It serves as evidence of the origin of the
goods and is often required for customs clearance purposes or to claim preferential tariff treatment
under free trade agreements. The COO may be issued by the exporter or a competent authority
designated by the exporting country.

Example: Suppose a electronics manufacturer in China exports a shipment of smartphones to a

buyer in Germany. The certificate of origin issued by the manufacturer or authorized organization
in China will certify that the smartphones were produced in China. This document helps the
German customs authorities determine the origin of the goods and apply appropriate import duties.

5. Inspection Certificate(s)
Inspection certificates are documents issued by authorized inspection agencies or organizations to
verify the quality, quantity, and compliance of the goods being transported These certificates
assure the buyer that the goods meet certain standards, specifications, or regulatory requirements.
They are particularly important for goods subject to specific regulations or when the buyer requests
a third-party inspection.

Example: Let's say an agricultural company in Australia exports a shipment of fresh fruits to a
distributor in Singapore. The inspection certificate issued by a government-approved inspection
agency will confirm that the fruits comply with phytosanitary regulations, ensuring that they are
free from pests or diseases. This certificate provides assurance to the Singaporean importer and
facilitates customs clearance.

6. Packing List

A packing list provides a detailed account of the contents of a shipment. It includes information
such as the type and quantity of goods, packaging details, and weight and dimensions of each
package. The packing list helps the buyer verify the received goods against the order and assists
customs officials in identifying and inspecting the goods.

Let's say a company in Canada exports food products to a buyer in Mexico. The exporter prepares
a packing list that specifies the contents of each package, including the quantity and description of
the products, packaging details (e.g., boxes or pallets), and weight and dimensions of each
package. The packing list helps the buyer verify that the received goods match the order and
facilitates customs clearance by providing detailed information about the shipment.

7. CIM Note

A CIM consignment note (Convention International des Marchandises par Chemin de Fer)
which sets conditions for international transportation of goods by rail – can appear to look very
complex. However, only the top half of the form is used for information about the goods and
transportation: the bottom half is used during carriage as various railway companies enter charges
and exchange rates. CIM conditions dictate that the carrier is responsible for loss and/or damage
of the goods from the time he takes possession of them until they are delivered.

8. Multimodal Transport Document (MTD)

A multimodal transport document is used when goods are transported using multiple modes of
transportation, such as a combination of sea, air, road, or rail. It is issued by a freight forwarder or
a logistics provider and covers the entire journey from the point of origin to the final destination.
The multimodal transport document contains information similar to other transport documents,
such as the shipper's and consignee's details, description of the goods, and the terms of delivery. It
provides a seamless flow of information and simplifies the documentation process.

NOTE: All international transactions involving the transport of goods require some form of
bill of lading.

BANKING DOCUMENTS

These are the documents required by the banks participating in an international transaction,
especially through a documentary letter of credit or documentary collection procedure. The
quantity and formality of this type of documentation is greatly influenced by the requirements of
the exporter and importer.

■ Banking documents include the application for letter of credit or documentary collection, and
Bill of exchange. Related documents include those made part of a document package for the
importer for the import clearance of the goods in the country of destination. Not all transactions
require each of these documents. In many international transactions, the banks are only involved
in the cashing of a check for the exporter/ seller or the forwarding of a bank wire from the
importer/buyer.

1. Letter of Credit (L/C)

A letter of credit is a financial instrument issued by a bank on behalf of the buyer (importer) to
guarantee payment to the seller (exporter) upon the presentation of specified documents. The LC
serves as a conditional guarantee of payment and ensures that the seller will receive the agreed-
upon amount as long as they comply with the terms and conditions outlined in the LC. This
document minimizes risks for both parties involved in the transaction.

Suppose a company in Japan wants to import machinery from a supplier in the United Kingdom.
To ensure a secure payment process, the buyer requests a letter of credit from their bank. The bank
issues an LC, which guarantees that the seller will receive the payment once they provide the
required documents, such as a commercial invoice, bill of lading, and inspection certificate. The
LC mitigates the risk for both parties, as the seller is assured of payment, and the buyer is protected
against non-compliance or non-delivery.

2. Bill of Exchange

A bill of exchange, also known as a draft, is a written order from the exporter (seller) to the
importer (buyer) to pay a specified amount of money within a specific time frame. It is a negotiable
instrument that allows the seller to transfer their right to receive payment to a third party, such as
a bank, through a process called discounting. The bill of exchange facilitates payment when the
buyer and seller are located in different countries or when other payment methods are not feasible.

Imagine a scenario where a company in Brazil purchases raw materials from a supplier in India.
Due to the geographical distance, the buyer and seller agree to use a bill of exchange as a payment
method. The seller drafts a bill of exchange, indicating the amount owed, the due date for payment,
and the details of the bank or party authorized to receive payment on their behalf. The bill of
exchange can be discounted at a bank, enabling the seller to receive payment before the due date.