IOE Tradeportal

Introduction to Export Contacts and Payments

In international trade there is little face-to-face contact between the exporter and the buyer. Further, the involvement of third parties that separate the exporter from his customer (e.g. transporters, insurers, banks and national officials) affects the exporter’s ability to control the receipt of sale proceeds of the goods.

However, the exporter can do a great deal to protect his own interests by making appropriate stipulations in the sales contract, by choosing appropriate methods of payment and by complying precisely with all the documentary requirements of the methods chosen.

In addition to details of the goods and prices, the sales contract will normally specify trade terms, i.e. such matters as insurance, transport, freight costs, etc., and payment details.

Sales Contracts

Trade terms determine whether the exporter or the buyer will bear the responsibility, cost and risk for each stage of the business transaction. Although many trade terms seem self-explanatory or easy to understand, they can easily become a source of disagreement between the exporter and the buyer unless they are carefully defined. Incoterms 2000, the trade terms promoted by the International Chamber of Commerce, are well recognised and defined and can be used as the basis for most agreements.

The terms agreed in the contract will affect all subsequent documentation, principally the sales invoice, and all the documents must be consistent with the sales contract.

Payment details specify how the exporter will be paid and what conditions he must meet in order to get his money. In addition, certain kinds of payment, known as documentary credits, require the exporter to present specified documents in order to get paid, and all these documents must also be consistent with the sales contract. All these details need to be considered carefully so that the goods do not pass into the hands of the buyer before the exporter is assured he will get paid for them.

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Trade terms and Incoterms

Trade terms set out the rights and obligations of the parties to a sales contract with respect to the delivery of goods. They define whether the customer (buyer) or the exporter (seller) will be responsible for arranging the transport and insurance necessary for the delivery of goods, and up to what point, and other related matters.

The most commonly used terms, accepted by international practice since 1936, are published by the International Chamber of Commerce (ICC) as “Incoterms”. The current edition is “Incoterms 2000”.

The information in the following table appears at Section 17 of Incoterms 2000 (ICC Publication 560).

Mode of transport and the appropriate Incoterm 2000

Any mode of transport:

Group: Ex Works (…named place)

Group F

FCA: Free Carrier (…named place) to (…named place of destination)

CIP: Carriage and Insurance Paid To (…named place of destination)

DAF: Delivered at Frontier (…named place)

DDU: Delivered Duty Unpaid (…named place of destination)

Group D

DDP: Delivered Duty Paid (…named place of destination)

Maritime and inland waterway transport only:

Group F:

FAS: Free Alongside Ship (…named port of shipment) Free On Board (…named port of shipment)

Group C: Cost and Freight (…named port of destination)

CIF: Cost Insurance and Freight (…named port of destination)

Group D: Delivered Ex Ship (…named port of destination)

DEQ: Delivered Ex Quay (…named port of destination)

Incoterms are not law and have no direct force of law, but by incorporating them in sales contracts exporters and buyers do give them legal effect. Thus, if an Incoterm is shown in a pro forma invoice or sales contract, it is absolutely necessary that the exporter understands the term clearly, and also that his customer shares his understanding from the outset. Such shared understanding of the full implications for both cost and risk should prevent later disputes and resultant delays in receiving funds for goods exported.

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