Bill of Lading
What it is:
A bill of lading is like a receipt -- it is an acknowledgement of the receipt of goods. A carrier often gives a shipper a bill of lading and an invoice when it is moving goods for the shipper.
How it works/Example:
Company XYZ is in Seattle and it wants to purchase goods from a supplier, Company ABC, in China. The supplier gives the goods to a transatlantic shipping company for transportation to Seattle. It obtains a bill of lading from the transportation company and the goods are transported overseas.
A bill of lading specifies the quantity and type of goods being transported, as well as the goods' final destination and the vessel on which they travel. In many cases, the bill of lading details whether the recipient (Company XYZ in our example) must pay for the goods upon receipt, whether certain terms must be met before the recipient's bank secure the shipment with a letter of credit, and/or whether the goods are damaged or in the wrong quantity upon arrival.
Why it matters:
A bill of lading is a contract. It covers the specific terms of the transportation agreement between a shipper and a carrier. A bill of lading is also a receipt, because it proves that the carrier accepted the goods and agreed to take them to their agreed-upon destination. As a result, some bills of lading can be bought, sold or traded when the goods are in transit. In some cases, the recipient of the goods (Company XYZ in our example) can authorize its bank to take title of the goods if it defaults on a payment.