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What is a Bill of Lading?

What is a Bill of Lading?

Bill of Lading Definition

A Bill of Lading (B/L or BoL) is a legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods/freight carried.

Why is Bill of Lading Important?

The Bill of Lading acts as a receipt for proving that the carrier has received the goods. It is also a contract, laying out the terms for transporting those goods safely to their destination. Importantly, it acts as a title document, allowing the ownership transfer of the goods in transit. The Bill of Lading makes international trade smoother and more secure, ensuring a clear record of the agreement and the state of the shipped goods. It is essential for managing shipment, ownership, and legalities in global trade.

Understanding Bill of Lading in Finance and Accounting

A Bill of Lading is not just a shipping document but a crucial instrument in securing payment, facilitating trade financing, and mitigating risks in international commerce. Beyond logistics and transportation, It ensures the smooth execution of trade transactions and financing arrangements. ABill of Lading (B/L) holds significant importance in trade finance. Here’s how:

  • Security for Payment: It assures the seller of payment security before the buyer can take possession of the goods. Since the B/L is a title document, it is essential during the release of the goods at the destination.
  • Documentary Collection and Letters of Credit: In trade finance, the B/L is useful for documentary collection and letters of credit transactions. Banks use it to control the release of goods to the buyer, ensuring that sellers receive payment. When a sale involves a letter of credit, the bank requires B/L for seller payment.
  • Financing and Factoring: Sellers can use B/Ls to obtain financing before the buyer completes payment. Banks or financial institutions may provide advances against the security of the goods represented by the B/L. Additionally, companies engaged in factoring sell their invoices or receivables at a discount to finance immediate cash flow needs, with the B/L serving as evidence of the shipped goods and the transaction validity.
  • Risk Mitigation: It plays a critical role in mitigating risks associated with international trade, such as fraud, damage, or loss of goods. Finance providers often require a detailed B/L to assess and manage these risks before extending trade financing.

In accounting, the Bill of Lading (B/L) assists in recording and transaction management during freight shipping. Understanding and managing the information in the Bill of Lading allows accountants to ensure accurate financial records, manage cash flows related to shipping, and maintain control over the company's inventory. This accuracy is critical for preparing financial statements, managing costs, and making informed business decisions. Here's an overview of the Bill of Lading's role in accounting.

Revenue Recognition

The Bill of Lading is critical for revenue recognition of companies selling goods. According to many accounting standards, including the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) in the United States, the sale of goods revenue recognition happens after the goods control is transferred to the buyer. The B/L is a document that proves the shipment of goods and can be used to establish the control transfer, allowing the seller to recognize revenue at the time of shipment.

Inventory Management

The Bill of Lading also helps in managing inventory. When goods are shipped out, the B/L provides detailed information about the goods leaving the warehouse, essential to update inventory records and reflect the decrease in inventory levels. Conversely, when receiving goods, the B/L details help update inventory records to reflect received items.

Accounts Payable and Receivable

The B/L affects accounts payable (for the buyer) and accounts receivable (for the seller) processes. For the buyer, the receipt of a B/L signifies an obligation to pay for the shipped goods, thus triggering the recording of an account payable. For the seller, it indicates revenue recognition and ensures an account receivable record of pending payments for the buyer.

Audit and Verification

Bills of Lading serve as key documents during financial audits. Auditors use B/Ls to verify the existence and condition of physical goods in transit, confirm the terms of sale, and ensure the proper recognition of revenue and expenses associated with the shipment of goods. The B/L helps with transaction validation and financial statement accuracy.

Risk Management

From an accounting perspective, the B/L is also important for risk management. It provides legal evidence of the terms of shipment and responsibility for the freight at different points in the shipping process. It is crucial for resolving disputes, claiming insurance, and managing risks associated with the loss or damage of goods during transit.

Types of Bill of Lading

There are several types of Bill of Lading, each with a purpose, fitting different shipping needs. Whether you are shipping goods directly to a buyer or transferring them while they are still at sea, there is a Bill of Lading designed to make the transaction smoother.

Straight Bill of Lading

It is a non-negotiable bill, which means you can't transfer the bill to someone else. Here, the shipper sends goods to the specific buyer who must receive them. 

Order Bill of Lading

The B/L allows the seller to sell the goods that are still in transit by endorsing the bill to another party. 

Bearer Bill of Lading

Whoever holds (or bears) this document can claim the goods. No names are needed; possession of the document is the key.

Seaway Bill of Lading

The shipper sends goods to a consignee, but there's no need for signatures to release them. It speeds things up, especially for trusted partners.

Straight Bill of Lading

It is used when the goods are consigned directly to a named consignee and are not negotiable or transferable. It is used in shipments where the goods have been paid for or don't require payment upon delivery.

Order Bill of Lading

This type is a negotiable bill and is transferable to a third party. It's used when the goods are shipped before payment, allowing the seller to retain control over the goods until payment is received.

Bearer Bill of Lading

This allows the delivery of goods to whoever holds the bill, making it highly flexible but also riskier in terms of security. The holder of the document at the time of delivery is entitled to the goods, no endorsement is needed.

Seaway Bill of Lading

It simplifies the delivery process as no physical document is required to claim the goods. The carrier releases the cargo to the consignee named in the electronic record, ideal for quick transactions between trusted parties.

Shipped on Board Bill of Lading

It certifies that the goods have been loaded onboard the ship. This is crucial for buyers and banks in international trade, as it serves as proof that the carrier has possession of the cargo.

Received for Shipment Bill of Lading

Issued when the carrier receives the goods but before they are loaded onto the ship. It's often used when goods are brought to the port ahead of the ship's arrival.

Through Bill of Lading

It covers the transportation of goods across various modes of transport, from origin to final destination, under a single contract. The Through Bill of Lading is useful for international shipments requiring multiple transportation methods.

Multimodal/Combined Transport Bill of Lading

Similar to the Through Bill of Lading, this document is used for shipments that involve more than one mode of transport (e.g., rail, sea, and road) but under a single contract with a single carrier who assumes responsibility for the entire carriage.

Airway Bill

It is used specifically for air freight. Unlike a traditional Bill of Lading, an Airway Bill is a non-negotiable bill, which means it does not confer ownership of the goods by possession. It acts as a receipt for the goods shipped, a contract for carriage, and a document for customs clearance.

Switch Bill of Lading

It is issued to replace the original Bill of Lading for various reasons, such as changing the consignee or the destination of the cargo after the shipment has left the port of origin but before it arrives at its destination. It is useful in trades where the goods are sold in transit.

Inland Bill of Lading

This document is used during goods transportation over land, typically within the same country. It is often employed for rail or truck shipments and is the first step in moving goods to their final destination or a port for further shipment overseas.

Freight Bill

While often confused with a Bill of Lading, a Freight Bill specifically relates to the charges associated with the goods transported. It's essentially an invoice from the carrier to the shipper for the transportation services. However, it can sometimes act as a receipt for goods shipped.

Container Bill of Lading

This type is used for container shipments. It provides details about the container itself as well as the goods inside. It's crucial for shipments that involve sea transport in containers, combining the characteristics of a traditional Bill of Lading with specifics about containerized cargo.


What is the difference between a Bill of Lading and an Invoice?

The Bill of Lading and invoice serve different purposes in the shipping and trading process. The Bill of Lading acts as a receipt for goods shipped, a contract between the shipper and carrier, and sometimes a document of title, indicating ownership of the goods. In contrast, an invoice is a financial document issued by the seller to the buyer, detailing the goods or services sold, their prices, and the total amount due. While the Bill of Lading focuses on the terms and logistics of transporting goods, the invoice centers on the transaction's financial aspects, including payment terms and details necessary for accounting purposes.

What is a Bill of Lading in Finance?

In finance, the Bill of Lading serves as a critical document for securing trade financing and managing payment risks. Financial institutions often require it to provide letters of credit, which guarantee payment to exporters upon proof of shipment of goods. The Bill of Lading assures lenders and buyers about the shipment of goods as agreed, serving as collateral and reducing the risk of non-payment. Essentially, it links the physical movement of goods to their financing, facilitating international trade by providing a trusted mechanism for payment and credit.

What is the difference between a Bill of Entry and a Bill of Lading?

The Bill of Entry and the Bill of Lading are distinct documents used in international trade. The Bill of Lading is issued by the carrier to the shipper, detailing the goods shipped, their destination, and the terms of shipping. It acts as a receipt, a contract, and sometimes a document of title. On the other hand, the Bill of Entry is a document submitted by an importer to the customs authorities upon the arrival of goods. It declares the nature, quantity, and value of goods entering the country, used for assessing customs duties and taxes. While the Bill of Lading concerns the transport of goods, the Bill of Entry focuses on their legal entry and taxation at the destination.

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