A type of bill of lading that is distinguished by the contract being able to be transferred to a third party
Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.
A negotiable bill of lading is a type of bill of lading. Lading is the action of loading a ship or vessel with cargo. A negotiable bill of lading is distinguished by the contract being able to be transferred to a third party.
What is a Bill of Lading?
A bill of lading, also known as a waybill, is a legal document issued by a transporter to a shipper with logistical details such as the type of cargo, the quantity, and destination for the goods. A bill of lading also functions as a shipment receipt and confirmation for when a carrier delivers cargo to the prescribed receiver.
The bill of lading is an important document in the logistics process and must be signed by authorized personnel from the shipper, carrier, and receiver. It is essentially a document with the following three purposes:
It is a document of title.
It is a cargo receipt.
It is an established transport contract between the receiver and the shipper.
It is an essential document for logistical purposes, ensuring that cargo has been properly shipped, transported, and confirmed to have been received. The bill of lading is also essential to prevent theft by ensuring that documentation on both the receiver and shipper are consistent.
Let us assume an example where “Restaurant A” receives fresh produce from a local “Farm Z” on a weekly basis. Restaurant A’s manager must review which fruits and vegetables are required for the week and fill out a purchase order (PO) that is submitted to Farm Z. The workers at Farm Z will gather the required items and prepare to send it by a delivery truck.
The delivery truck driver will transport the produce along with the bill of lading, which contains information about the purchase order, as well as other specifications. When the delivery truck driver arrives at Restaurant A, the manager of the restaurant will verify that the information provided on the bill of lading is the same as what was requested on the PO.
If the two documents match, then the manager can confirm the purchase and write a check payable to Farm Z. However, if it does not match, there could be a possible mistake or theft. Therefore, the bill of lading is crucial to ensure that the restaurant manager receives the requested goods and also pays the correct amount.
Negotiable vs. Non-Negotiable Bill of Lading
As mentioned earlier, the key difference between a negotiable and non-negotiable bill of lading is that the contract for a negotiable bill of lading can be transferred to a third party. It is done through the process of consignment, which is an arrangement in which the title of goods is transferred from a consignor to a consignee. The consignee is a third party who will sell goods on behalf of the producer, usually by collecting a commission.
The consignee takes financial responsibility and legal ownership of the goods. The negotiable bill of lading is carried with the carrier from the consignor to the consignee to ensure the validity of the contract. In order for the contract to be valid, it must be a clean bill of lading.
The main difference is that a non-negotiable bill of lading is meant to represent the transfer of goods to one specific consignee, receiver, or purchaser that the goods must be shipped to. Whereas, a negotiable bill of lading allows the shipment of goods to any consignee, receiver, or purchaser who is in possession of the negotiable bill.
Clean Bill of Lading and Straight Bill of Lading
1. Clean Bill of Lading
A clean bill of lading is issued by a carrier to ensure that goods have been received in satisfactory condition, without damage or defects. The carrier will issue a “clean” bill of lading upon inspecting the goods to ensure they are in the appropriate condition.
However, if the goods are defective, the bill of lading is considered “claused” or “fouled” to note the damage or defect.
2. Straight Bill of Lading
A straight bill of lading is essentially the non-negotiable bill of lading. It is a bill of lading that limits the carrier’s liability. It cannot be transferred to any consignee, receiver, or purchaser; it must be transferred to the specific recipient.
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
Take your learning and productivity to the next level with our Premium Templates.
Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.
Already have a Self-Study or Full-Immersion membership? Log in
Access Exclusive Templates
Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.