3. Shipper's Invoice. This invoice is commonly attached, although it is not essential, to the bill of exchange, or it may be sent direct to the foreign importer or drawee and thus avoid publicity. It contains a list of the goods, their selling price, weights, incidental expenses, terms of sale, etc. Its chief use is to substantiate the character of the commercial trans action and the drawer, and thus improve the standing of the 4. Consular Certificates, Inspection Certificates, and Weight Certificates. These certificates are sometimes attached, the requirements varying with the consignee country and with the nature of the goods. The inspection certificate is largely for quarantine purposes, and pertains mostly to meat and animal products.
5. Hypothecation Paper. This document attached to a bill of exchange authorizes the banker buying the bill to sell to best advantage the goods covered by the bill, in case payment is re fused. To save derical labor and postage incurred when such paper is attached to every bill drawn, the drawers may execute a general hypothecation power to apply to all their bills bought by their bankers.
6. War Risk Insurance Certificate. During war a special insurance certificate to cover war risks on shipment is attached.
If the documents are delivered to the drawee upon acceptance, between that date and payment the holder has an unsecured credit; but so long as the holder retains the documents it is im possible for the drawee to get possession of the goods and con vert them into cash for the purpose of paying the bill. For the convenience of traders there are various devices by which the documents may be delivered and the holder still retain some protection. The most common of these devices is the delivery of the documents to the drawee against a trust receipt, which, theoretically at least, keeps title to the documents and, therefore, to the goods, but allows the drawee to use them in trust for the drawer; that is, to convert them into cash and pay the bill of exchange. Any other use would constitute a breach of trust, upon which the drawer could assume possession of the money, goods or documents.
Another form of collateral security sometimes attached to bills of exchange is stocks and bonds, and such security is a very high kind. Various occasions arise under which such bills would be drawn. To illustrate, a bond held by an American may soon be due in London. Accordingly the American draws on the English corporation for principal and accrued interest and, attaching bonds and coupons to the bill, sells it, whereupon the buyer forwards the bill and documents to his London agent to deliver against payment. Or a Londoner may order a New York broker to buy some stock; the purchase is made, the stock is attached to a bill drawn by the broker on the Londoner, and the bill is sold in the market to raise money with which to pay for the stock. The buyer of the bill holds the stock till the bill is presented and paid.
Commercial Bills and Bankers' Bills Bills drawn by a house on one of its branch houses abroad are known as "house " or " agency" bills and are essentially single name bills. The same is true if the subsidiary is conduct6d under another name. The buyer of the bill must consider this factor in estimating the credit risk attaching; that is, he should know the financial relationship between drawers and drawees. If the drawer and drawee are distinct and independent concerns the bills are two-name papers. The credit risk is therefore less, for the financial embarrassment of drawer and drawee is not neces sarily interdependent, and after acceptance either party may be held by the buyer of the bill.
A single-name bill can be converted into a double-name bill by securing the indorsement thereon (guaranty) of a bank of high standing. National banks in the United States are denied by law the right to guarantee (that is, to become accommodation indorser, for a commission or otherwise) obligations in which they have no direct interest. To secure the higher credit rating afforded to a bill when a banker's name appears upon it, the sys tem of letters of credit (travelers' and commercial) has been devised.
A bill drawn in connection with a foreign trade transaction on another individual or commercial house is called a "com mercial bill," and its selling value takes into account the credit ratings of drawer and drawee. Certain houses enjoy a very high credit rating, and their bills command prices nearly equal to prime banker's bills. The credit department of a bank or financial house studies the credit ratings of these parties, and the prices offered for their bills vary with the credit estimates.
A bill drawn on a banker or accepting house is called a "banker's" bill, and is considered prime paper in the discount market because of the high credit rating of the drawee. Im porters buy such bills from banks to make remittances. Obvi ously if exporters could draw on banks rather than merchant houses they could get higher prices for their bills, and thus either realize more from the sale of their goods or be able to offer them abroad at lower prices. To accomplish this purpose the commercial letter of credit has been devised. The importer establishes in a New York or London bank a banker's credit, by which the bank. authorizes the exporter to draw on it up to the amount of that credit for goods shipped under certain conditions specified in the authorization. The bank also confirms to the exporter the right to draw as instructed by the importer. The exporter then draws on the bank, attaches the documents, and offers the bill for sale to his local bank. Since he can show the prospective buyer his confirmed authorization to draw on a well reputed bank, he is able to dispose of the bill at a good price.