Sales Contract, the Initial for Charcoal International Trade Transactions
International trade is dynamic. A trading activity that crosses states’ territorial boundaries and is basically conducted by two parties, the seller (exporter) and buyer (importer). However, in practice, it also involves other parties. From banks, shipping companies, customs, surveyor, to governmental departments.
In addition to the parties involved, international trade dynamics also has a circle on a more fundamental level, i.e. the form and method of the trade itself. There are several options that can be taken by the seller and buyer, ranging from the types of transactions without a guarantee from the bank (non L/C) as open account, advance payment, consignment, and documentary collection; to transactions involving the bank as a guarantor, namely letters of credit (L/C).
Now let’s make a flashback. Before the seller and buyer involved themselves in the process of international by including other parties, as well as engaged in a complex trading process -whatever is the method they choose- they firstly got a hold of the agreement they had first of all arranged as their underlying stance, namely the Sales Contract.
Yes, sales contract is the most beginning in the process of buying and selling in the realm of international trade. Sales contract includes an agreement between seller and buyer into a form of document comprising in principle their rights and obligations.
In practice we’ll find various kinds of sales contact, from the contract that is under hand to the order form as a facsimile. Or even a phone conversation can be regarded as a sales contract. However, to avoid disputes that may happen later on, should sales contract be made in a written structure.
Regarding the content, in general, sales contract contains clauses of agreement that are relatively similar, regardless of the buying and selling method chosen, whether it is L/C or non-L/C. The clauses listed generally include the following:
1. Terms of goods
a. Details of goods, including:
– Kind of goods
– Type of goods
– Specifications of goods
– Originality of goods
– Origin of goods
b. Quantity and quality of goods
c. Price of goods
2. Terms of delivery
– Port of loading and port of destination
– Partial shipment is allowed or not
– Transhipment is allowed or not
3. Terms of delivery
Clauses in sales contract regarding this requirement generally refers to the International Commercial Terms (INCOTERMS) in 2000 to uniform interpretation of the implementation of delivery requirements, risks and costs reassignment from the seller to the buyer based on the type of transportation used.
The types of terms of delivery according to INCOTERMS 2000 include:
1. Ex Works (EXW)
2. Free Carrier At (FCA)
3. Free Alongside Ship (FAS)
4. Free on Board (FOB)
5. Cost and Freight (CFR)
6. Cost Insurance and Freight (CIF)
7. Carrier Paid To (CPT)
8. Carrier and Insurance paid (CIP)
9. Delivered at Frontier (DAF)
10. Delivered Ex Ship (DES)
11. Delivered At Quay (DEQ)
12. Delivered Duty unpaid (DDU)
13. Delivered Duty paid (DDP)
Because the explanation of each type of terms of delivery the above requires details, so I would unwrap on the other articles. However in its practice, not all types of terms of delivery above mentioned are used in the transactions of international trade. The most commonly used are FOB, CFR, and CIF.
4. Terms of payment
a. Payments without L/C (non L/C), including:
– Open account
– Advance payment
b. Payment by L/C, consisting of:
– Sight L/C
– Usance L/C
– Red clause L/C
5. Terms of documents (documentations)
This clause includes an agreement about what documents are needed in the realization of the sales contract, consisting of:
a. Financial documents, namely draft/ unconditional order to pay a sum of money
b. Commercial documents, including:
– Invoice, as proof of sale of goods
– Transport document, as proof of delivery of goods
– Insurance documents, as proof of risks closure
– Other documents, such as Certificate of Origin, Certificate of Analysis, Certificate of Inspection, Packing List, etc.
That’s it the explanation of sales contract, the initial substance of an international trade transaction.