Trade Documentation
A Brief Guide to International Export Sales Contracts
As an exporter, you know that managing and overseeing several business aspects is critical. For example, you may have a specific team to handle and prepare all the documents required for export from India. In the same way, you have a legal team or legal counsel to help you draft an international sales contract.
While you are drafting and signing an international sales contract, it is essential to have the right support, but at the same time, it is also crucial for you to understand the contract terms. This article provides you with this basic understanding so that you can seek and make changes for your best advantage.
It is also vital to understand that the sales contract is part of the export compliance checklist and will help you negotiate better when opting for trade finance solutions. We aim to provide pointers ranging from the basic to more complicated terms to focus on.
Details to be included in export-related sales orders
When your team starts negotiating with your international customer’s team, it is vital to have a list of details, including must-haves and good-to-haves.
Complete information of the buyer and seller
Capture the exporter and importer's complete legal name and contact details, including the SPOCs (specific point of contact) for the transaction from both parties. Also, include alternate numbers and emails in case the SPOC is unavailable.
For the first transaction with the customer, collect company-related information like registration, tax identity numbers, and other details. Implement an efficient document management system for easy retrieval and access when required.
Details of products being sold by the exporter
This part is the basis of the transaction and needs to be detailed with the specifications. Add details like the quality, type, specifications, and the quantity of the goods. Include the quality standards and certifications agreed upon by both the parties. Include the kind of packaging for the goods to ensure complete clarity.
Pricing and terms of payment
Include the price of the goods and the currency in which the payment is to be made. Terms like advance, Letter of Credit, Bank Guarantees, bank transfer, and the credit period must also be added. Both parties must add as many details as possible to this agreement section.
Include details of the penalty for late delivery or late payment explicitly to ensure there’s no confusion.
Terms of delivery
This is another section that needs attention to detail and will include Incoterms like Freight on Board (FOB), Cost Insurance Freight (CIF), Delivered at Place (DAP), etc. Also, include details on who is responsible for costs like insurance, shipping, and customs clearance.
Add the exact place for delivery along with delivery dates (this could be defined as a span of time to accommodate the long journey, including shipping delays).
Packaging and labeling details
When goods are being sent across borders by either ship or air, mutual agreement on how the goods will be packaged and labeled is crucial. This aspect helps maintain the integrity of the product and helps with clearances at different ports and other regulatory customs authorities.
Quality control and inspection
In many cases, the importer may insist that their representative inspects the goods even before they are shipped to ensure quality. In other cases, the buyer will request a thorough inspection for quality control before taking delivery of the goods once they have landed at their destination.
Include all details about this aspect in your sales agreement, the process to handle quality deviations, and the standards you will adhere to.
Duties and customs formalities
The export process requires both parties to pay relevant duties and get customs clearance at the entry and exit points. The agreement must explicitly specify the responsibility for paying these duties and obtaining customs clearances.
Onus for risk of loss
Add the details of when the risks associated with the loss or damage of goods will apply to the exporter and the importer. For instance, the risk of loss will mainly rest with the exporter until the goods reach the destination port. However, the risk of loss will transfer to the importer from this point onward.
Force Majeure
This clause refers to events that cannot be predicted, like war, natural disasters, epidemics, etc. Detail how this will affect the delivery of goods or any payment delays.
Dispute resolution, termination, confidentiality, warranties, and guarantees
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Establish a mutually agreeable means to resolve any disputes that may arise out of the transaction, the jurisdiction, and the applicable laws
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Define the terms under which the contract can be terminated and the notice period for the termination of the contract
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Agree that both parties will protect the confidentiality of sensitive information during the transaction duration and thereafter
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The terms of warranty about the quality, conformity, and performance of the goods being sold
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Detail out the scope of the guarantee and the period for which it will be applicable, along with the conditions for the applicability
Other terms and conditions
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The process to modify any terms in the agreement
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Indemnify both parties for losses due to third-party claims
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The mutually agreed upon for the contract and translations, if any
We leave you with our input on what an international sales agreement should include. You can ensure the above points are included when you consult with your legal counsel during the process. For other matters like document management, inward remittance, and trade finance solutions, contact LeRemitt.
