SALES CONTRACT
ARIZONA STATE UNIVERSITY
ECN 736 - INTERNATIONAL TRADE THEORY
WEEK 2
A.
Definition of Sales Contract:
International trade transactions are dynamic. A buying and selling activity that crosses
national territorial borders is basically owned by two parties, namely the seller (exporter) and
the buyer (importer). However, in practice it also involves other parties, including banks,
shipping companies, customs, surveyors, and government departments. Apart from the parties
involved, international trade also has a circle of dynamics at a more fundamental level,
namely the form and method of buying and selling itself. There are several options that can be
taken by sellers and buyers, ranging from non-L/C transactions, such as open account,
advance payment, consignment, and documentary collection, to transactions that involve
banks as guarantors, such as Letter of Credit (L/C). Before sellers and buyers involve
themselves in the process of international trade by involving other parties, as well as engage
in a complicated trading process regardless of the method they choose, they first hold on to
the agreement they first make as their underlying, which is the sales contract. The sales
contract is the beginning of the buying and selling process in international trade the realm of
international trade. Sales contracts contain agreements or agreements between sellers and
buyers in the form of documents that basically state their rights and obligations. Sales
contract is an agreement between exporters and importers to trade goods in accordance with
mutually agreed terms and each party binds itself to carry out all its obligations, and the party
who breaks the promise will be sanctioned by paying compensation to the injured party. Sales
contract is an agreement between the seller and the buyer regarding the rights and obligations
of exporters and importers. Sales contract is also known as contract of sale, agreement to
sale, sales confirmation, and others. The sales contract is a master document that will be
followed by other contracts, such as a freight contract, and others. Sales contracts are based
on international contract law.
Sales contract is the beginning of export-import transactions with L/C, but the bank is not
bound or related to the sales contract where in L/C transactions the principle of separation of
contracts applies or also known as the principle of L/C independence. This is emphasized in
UCP 600 Article 4, which states that credit (L/C) by its nature is a separate transaction from
the sales contract or other contracts on which the L/C is based. And the bank's promise for the
sale or other contracts that form the basis of the L/C and the bank's promise to pay negotiate,
or fulfill any other obligations under the L/C are not subject to the applicant's claims or
defenses derived from the relationship with the issuing bank or beneficiary.
Sales contracts must be made by both parties because the function of the sales contract
itself is to resolve any differences that may occur during the foreign trade process so that the
transaction does not get out of line, which will later become the main legal basis for the
transactions of both parties. Because the sales contract is legally the main basis for the
occurrence of a transaction that is binding for both parties and the contractor will be the main
guideline in the implementation of subsequent transactions.
Description:
1.
Exporters promote their export products through exhibitions or displays on the internet,
sometimes exporters directly send offers to attract potential importers.
2.
Interested importers will send a letter of inquiry via fax/email to the exporter.
3.
The exporter responds by sending a complete offer sheet, including product description price,
price condition (FOB, CRF/CIF), packaging details, payment terms, shipment time, minimum
order, and other important things that the importer needs to know.
4.
Interested importers will send orders (order sheets) to exporters by listing them, in addition,
they must also be equipped with the requirements set by the government in the field of
imports. And explain the "shipping marks" that have become customary (usage) in shipping
goods in international trade.
5.
The exporter will send a sales confirmation, which must be signed by the importer as a
reinforcing bond before the importer opens the L/C and before the product is prepared or
manufactured by the exporter.
6.
The exporter or importer issues a sales contract that must be signed by both parties.
Sales contract as an engagement between the parties must fulfill the three main
foundations of the agreement, namely:
1.
The principle of consensus is an agreement between the two parties voluntarily.
2.
The obligator principle is for both parties to carry out all their respective rights and
obligations.
3.
The principle of penalty is willing to compensate the other party if it cannot fulfill its promise
in carrying out its obligations.
In practice, there are various forms of sales contracts. They range from notarized,
underhand contracts, to mere faxed orders. Or even a telephone conversation can be
considered a sales contract. However, to be on the safe side and to avoid disputes in the
future, it is best if the sales contract is in writing. Regarding content, in general, sales
contracts contain relatively the same agreement clauses. That is regardless of the sales
method they choose, whether L/C or non-L/C. And the clauses included generally include the
following:
1.
Terms of Goods
a.
Item details include:
1)
Kind of goods.
2)
Type of goods.
3)
Specification of goods.
4)
Originality of goods.
5)
Origin of goods.
b.
Quantity and quality of goods.
c.
Price of goods.
2.
Goods Delivery Terms Include:
a.
Port of loading and port of destination.
b.
Whether partial shipment is allowed or not.
c.
Whether transhipment is allowed or not.
3.
Terms of Delivery:
International Commercial Terms (Incoterms) is a collection of terms created to equalize the
understanding between sellers and buyers in international trade. Determining the terms of
delivery of goods in export and import activities (terms of delivery) from the seller to the
buyer is very important. All of this aims to avoid misunderstandings in the process of
shipping goods. All of this is considered important because it relates to the issue of costs and
risks in each process. With the terms of delivery, it will be clear the division of costs and risks
of each party. Then the terms of delivery that have been agreed upon by the seller and buyer
must be included in the sales contract. And after being agreed upon, it is then applied to the
delivery of goods and legalized on the transportation documents. For example, a delivery note
is used in land transportation, Bill of Landing (B/L) if using sea transportation and Airway Bill
(AWB) if using air transportation. In international trade, the terms of delivery of goods in
export and import activities regarding sales contract articles in terms of delivery refer to the
2000 version of the International Commercial Terms (Incoterms) (Incoterms 2000). All of
this aims at uniform interpretation of the implementation of the terms of delivery of goods,
reducing the risks and costs that have been incurred based on the means of transportation
used. In the International Commercial Terms (Incoterms) 2000, there are 13 kinds of terms of
delivery grouped into 4 categories, each of which is grouped by their initials:
a.
"C" terms for CFR, CIF, CPT, and CIP
That is, the seller must bear the cost of transporting the goods. For this purpose, the seller
must conclude a carriage contract. However, in this case, there is no responsibility for the
risk of loss, damage, and also does not bear additional costs that may arise after shipment and
release of goods (dispatch).
b.
Terms "D" for DAF, DES, DEQ, DDU, and DDP
That is, the seller is obliged to bear all costs and risks of shipping the goods to the port of
destination.
c.
Condition "E" for EXW
That is, the seller provides the goods at his own premises (for example, in his warehouse or
factory). The buyer must then arrange for the transportation of the goods from the seller's
country.
d.
"F" terms for FCA, FAS, and FOB
That is, the seller is only obliged to deliver or deliver the goods to the means of transportation
designated by the buyer.
International Commercial Terms (Incoterms) are issued by the International Chamber
of Commerce (ICC), the latest version issued on January 1, 2011 is referred to as Incoterms
2010. Incoterms 2010 is issued in English as the official language and 31 other languages as
official translations. In Incoterms 2010 there are only 11 simplified terms from the 13 terms
of Incoterms 2000, i.e. by adding 2 new terms and replacing 4 old terms. The new terms in
Incoterms 2010 are Delivered at Terminal (DAT) and Delivered at Place (DAP). The 4 old
terms that were replaced are: Delivered at Frontier (DAF), Delivered Ex Ship (DES),
Delivered Ex Quay (DEQ), and Delivered Duty Unpaid (DDU).
1.
Terms of Delivery of Goods:
As explained above about the categories in the Inter-national Commercial Terms (Incoterms),
we now know the 4 categories of terms of delivery. To know in more detail each of the terms
of delivery according to Incoterms 2000 above regarding who bears the cost of transportation,
risk sharing, and customs clearance.
2.
Way of Delivery of Goods:
The following are the various methods of delivery of goods and their consequences for export
and import activities:
a.
EXW - Ex Works
The delivery of goods and the transfer of risk from the seller to the buyer takes place on the
seller's premises. The seller has the obligation to provide goods at his place (factory /
warehouse). While the buyer has the obligation to take care of transportation. All costs
associated with transportation costs, customs clearance in the territory of the seller and
buyer's country (export import clearance), and shipping risks from departure to receipt of
goods are the responsibility of the buyer.
b.
FCA - Free Carrier At
The delivery of goods and the transfer of risk from the seller to the buyer are made when the
goods are handed over to the buyer, and are made when the goods are handed over to the
carrier appointed by the buyer. The seller has the obligation to prepare the transportation on
behalf of the buyer. Meanwhile, the buyer is in charge of determining the carrier and making
a carriage contract. Customs clearance in the seller's territory (export clearance) is the
responsibility of the seller. Meanwhile, the transportation costs and risks from the time the
goods are handed over by the seller to the carrier to the buyer's place are the responsibility of
the buyer.
c.
FAS - Free Alongside Ship
The delivery of goods and the transfer of risk from the seller to the buyer takes place when the
goods are placed alongside the ship. The seller is obliged to place the goods alongside the
vessel, while the buyer determines the carrier and concludes a contract of carriage. Customs
clearance in the seller's territory (export clearance) is the responsibility of the seller.
Meanwhile, the cost of transportation and the risk of delivering the goods to the buyer and
(import clearance) are the responsibility of the buyer.
d.
FOB - Free on Board
The delivery of goods and the transfer of risk from the seller to the buyer takes place when the
goods are loaded on board.
e.
CFR - Cost and Freight
Some refer to it as CNF, C&F, C and F, or C+F. However, the actual usage according to
Incoterms 2000 is CFR. The seller is obliged to determine the carrier, conclude a contract of
carriage, place the goods on board, bear the loading costs and freight to the port of
destination. Meanwhile, the buyer is obliged to bear costs beyond the seller's burden
according to the contract of carriage.
f.
CIF - Cost Insurance and Freight
The delivery of goods and the transfer of risk from the seller to the buyer takes place when the
goods are loaded on board.
g.
CPT - Carriage Paid To
This condition is used in the case of transportation of goods carried out using multimodal
transport. Delivery of the goods and the transfer of risk from the seller to the buyer is made
when the goods are loaded on the first means of transport.
h.
CIP - Carriage and Insurance Paid
This condition is used in the case of transportation of goods carried out using multimodal
transport. The delivery of goods and the transfer of risk from the seller to the buyer is made
when the goods are loaded on the first means of transport.
i.
DAF - Delivered at Frontier
This requirement is used in the case of transportation of goods carried out using multimodal
transport. The delivery of goods and the transfer of risk from the seller to the buyer takes
place at a border place outside the seller's territory.
j.
DES - Delivered Ex Ship
The delivery of goods and the transfer of risk from the seller to the buyer takes place on board
the ship at the port of destination. The seller is obliged to determine the carrier, conclude a
contract of carriage, pays the freight, transport costs, and delivers the goods on board the ship
to the buyer at the port of destination. Meanwhile, the buyer is obliged to pay the unloading
fee at the port of destination.
k.
DEQ - Delivered at Quay
The delivery of goods and the transfer of risk from the seller to the buyer which is carried out
at the destination of the unloading of goods.
l.
DDU - Delivered Duty Unpaid
The delivery of goods and the transfer of risk from the seller to the buyer carried out at the
destination of unloading goods without the completion of import clearance.
m.
DDP - Delivered Duty Paid
The delivery of goods and the transfer of risk from the seller to the buyer which is carried out
at the destination of the unloading of goods including the completion of import clearance.
3.
Incoterms 2000 Terms by Means of Transportation:
As explained above about the 13 conditions for delivery of goods, the conditions for delivery
of goods can be classified according to the means of transportation of goods.
In practice, not all delivery terms in Incoterms 2000 are used in trade transactions.
Whether it is a transaction with open account, advance payment, collection, or Letter of
Credit (L/C) methods. The most commonly used terms are FOB, CFR, and CIF. These three
are the most moderate in terms of who bears the transportation costs and risks of the goods
while in transit.
Clauses in sales contracts regarding this term generally refer to the International
Commercial Terms (Incoterms) 2000 to uniformly interpret the implementation of the terms
of delivery of goods, transfer of risk, and costs from the seller to the buyer based on the type
of transportation means used.
Types of terms of delivery according to Incoterms 2000 includes:
a.
Ex Works (EXW).
b.
Free Carrier At (FCA).
c.
Free Alongside Ship (FAS).
d.
Free on Board (FOB).
e.
Cost and Freight (CFR).
f.
Cost Insurance and Freight (CIF).
g.
Carriage Paid To (CPT).
h.
Carriage and Insurance Paid (CIP).
i.
Delivered at Frontier (DAF).
j.
Delivered Ex Ship (DES).
k.
Delivered at Quay (DEQ).
l.
Delivered Duty Unpaid (DDU).
m.
Delivered Duty Paid (DDP).
The Incoterm FOB, C&F, and CIF terms set out the responsibilities of each party
(exporter and importer). FOB pricing means that the exporter is responsible for taking care of
the goods until they reach the ship. All costs of loading the goods at the port of loading
including export taxes and export licenses (if any) are the responsibility of the exporter. Since
the freight is paid by the importer, the shipping line will allow the loading of the goods when
the shipping line has received confirmation and guarantee of payment from the exporter. C&F
pricing means that the exporter is responsible for arranging for the goods to reach the ship,
including paying the freight, all costs of loading the goods at the port of loading including
export taxes and export licenses are the responsibility of the exporter.
CIF pricing means that the exporter is responsible for taking care of the goods until they
reach the ship, including paying the shipping costs and paying insurance premiums. All
loading costs are the responsibility of the exporter. Among FOB, C&F, and CIF, which is the
most favorable for exporters is FOB, because in FOB exporters are only responsible for taking
care of the goods until they reach the ship. Starting from loading the goods at the port of
loading including Export taxes and export licenses are borne by the exporter, while freight is
paid by the importer and the importer is also responsible for insurance premiums on the goods
being shipped. So, on FOB, exporters do not need to spend more in conducting international
trade.
Incoterms (The International Commercial Terms), was established to provide universally
standardized definitions of terms used in international trade transactions, such as FOB (Free
on Board), CIF (Cost, Insurance, and Freight). Standardized and practical international trade
practices guiding simple forms cut across the boundaries of traditional and complex contract
law. Important aspects and elements of standard contracts, especially sales contracts. When
businessmen enter into agreements among themselves, it is generally understood that, on the
terms they agree to, they will achieve the economic objectives they expect. This is not a
problem because both parties understand the meaning of the terms. The terms are formulated
in such a way that they become conditions that apply to all people who make economic
agreements with the entrepreneur concerned. In other words, the conditions are standardized,
meaning that they are set as a benchmark for every party who makes an economic agreement
with the entrepreneur concerned.
Incoterms or terms of trade are a supplement to the "sales contract" which regulates the
rights and obligations between the seller and the buyer:
a.
delivery of goods from the seller to the buyer;
b.
risk sharing between seller and buyer; and
c.
responsibility in obtaining export-import licenses. Furthermore, to facilitate trade, what must
be understood before conducting trade is:
1)
Both parties must agree and understand the Incoterm-based contract has terms that are
appropriate and suitable for both parties;
2)
clearly state the location of the place/port/terminal that is the point of origin and point of
destination;
3)
Understand that trade contracts are very complex, and understand that there are contractual
agreements that are not covered by the Incoterm and are resolved by cooperation;
4)
anticipate global economic developments;
5)
reduce differences in trade understanding when the sales contract does not cover it;
6)
regulate domestic and international trade; and
7)
Reduce the risk of complications of each country's provisions.
4.
Terms of Payment:
a.
Payment without L/C (non-L/C), including:
1)
Open account
2)
Advance Payment
3)
Consignment
4)
Collection
b.
Payment by L/C, consisting of:
1)
Sight L/C
2)
Usance L/C
3)
Red Clause L/C
5.
Documentations:
This clause contains an agreement on what documents are needed in order to realize the sales
contract, consisting of:
a.
A financial document, in the form of a draft/conditional order to pay a sum of money.
b.
Commercial documents, including:
1)
Invoice, as proof of sales of goods.
2)
Transportation documents, as proof of goods delivery.
3)
Insurance documents, as proof of risk/insurance coverage.
4)
Other documents, such as certificate of origin, certificate of analysis, certificate of inspection,
packing list, and others.
Export trade contracts can be made orally. However, because exporters and importers are
domiciled in different countries and have different laws, to avoid misunderstanding due to
different languages, the rights and obligations of each party should be formulated in written
form which can be used as evidence in the event of a breach of promise which results in a
dispute in court. It should be noted that international trade is commonly called document
trade, because all transaction activities are actualized in the form of documents called
offershet, goods shipped by ship and proof of delivery issued documents called B / L (Bill off
Lading) and so on. The sales contract here is the parent document of all documents in
international trade. All other documents and all issues that occur will refer to this export sales
contract.
There are 4 (four) main stages in exporting using L/C, which are as follows:
a.
Sales Contract Process:
A sales contract is a document or letter of agreement between the seller and the buyer that is a
follow-up to the purchase order requested by the importer. It contains the payment terms of
the goods to be sold, such as price, quality, quantity, transportation method, insurance
payment, and so on. This contract is the basis for the buyer to fill in the L/C opening
application to the bank.
1) Promotion
Promotional activities for commodities to be exported through promotional media, such as
advertisements in electronic media, magazines, newspapers, trade shows, or through
agencies/institutions related to export promotion activities, such as DG PEN, Chambers of
Commerce and Industry, trade attachés, and so on.
2) Inquiry
The sending of a letter of inquiry for a particular commodity by an importer to an exporter. It
usually contains a description of the goods, quality, price, and delivery time.
3) Offer Sheet
The importer's request will be responded to through an offer sheet sent by the exporter. This
offer sheet contains information according to the importer's request regarding the description
of the goods, quality, price, and delivery time. In addition, the offer sheet usually includes
payment terms and sample/brochure delivery.
4) Order Sheet
After getting a quote from the exporter and studying it, if agreed, the importer will send an
order letter in the form of an order sheet (purchase order) to the exporter.
5) Sales Contract
In accordance with the data from the order sheet, the exporter will then prepare a sales
contract which is added with force majeure clause and inspection clause information. This
sales contract is signed by the exporter and sent in two copies to the importer.
6) Sales Confirmation
The sales contract will be studied by the importer, if the importer agrees, the sales contract
will be signed by the importer and then returned to the exporter as a sales confirmation.
Another copy of the sales contract will be kept by the importer.
b.
L/C Opening Process:
Letter of Credit (L/C) is a guarantee from the issuing bank to the exporter in accordance with
instructions from the importer to make payment of a certain amount with a certain period of
time on the basis of submission of documents requested by the importer.
The L/C opening process is as follows:
1)
The importer will ask the opening bank (foreign exchange bank) to open a Letter of Credit
(L/C) as collateral and funds that will be used to make payments to the exporter in accordance
with the agreement on the sales contract. The L/C opened is for and on behalf of the exporter
or other person or entity appointed by the exporter in accordance with the payment terms in
the sales contract.
2)
The opening bank will open the L/C through its correspondent bank in the exporter's country,
in this case the advising bank. The L/C opening process is done through electronic media,
while the confirmation in written form will be stated in the L/C confirmation that is forwarded
from the opening bank to the advising bank to be delivered to the exporter.
3)
The advising bank will check the validity of the L/C opening from the opening bank, and if
appropriate, the advising bank will send a cover letter (L/C advice) to the eligible exporter. If
the advising bank is also requested by the opening bank to guarantee payment of the L/C, the
advising bank is also known as confirming bank.
c.
Cargo Shipment Process:
An important output of this process is the shipment document, which is proof that the exporter
has shipped the goods ordered by the importer in accordance with the terms stated in the L/C.
The stages of the cargo shipment process are as follows:
1)
The exporter will receive the L/C advice as a reference to ship the goods and at this time the
exporter will make a shipment booking to the shipping company in accordance with the terms
stated in the sales contract. After that, the exporter must take care of the obligations of the
Notice of Export of Goods (PEB) at the customs of the port of loading. As well as other
matters, such as payment of Export Tax (PE) and Additional Export Tax (PET) at the advising
bank.
2)
The shipping company will load the goods and submit the goods receipt, transportation
contract, proof of ownership of the goods Bill of Lading (B/L), and other shipping documents
if any to the exporter, then the exporter will send it to
advising bank to be sent to the opening bank.
3)
The shipping company will transport the goods to the destination port mentioned in the Bill of
Lading (B/L).
4)
The importer will receive the shipping document if the payment obligation to the opening
bank has been made. Furthermore, this shipping document is used to take care of import
clearance with the customs at the port and to pick up the cargo at the shipping company that
loads the ordered goods.
5)
The shipping agent will deliver the goods to the importer if the shipping agent's service fee
has been paid.
d.
Shipping Document Negotiation Process:
This process is the process of filing shipping documents for exporters and is the process for
claiming paid goods for importers.
The stages of the shipping document negotiation process are as follows:
1)
After receiving the B/L from the shipping company, the exporter will prepare all other
documents required in the L/C, such as invoice, packing list, quality certification, Certificate
of Origin (SKA), and so on. All of these documents will be submitted to the negotiating bank,
in this case advising bank, specified in the L/C to obtain payment of the L/C.
2)
The negotiating bank will check the completeness and accuracy of the shipping documents
sent by the exporter, if they match the L/C requirements, the negotiating bank will make
payments according to the exporter's bills from the available L/C funds.
3)
The negotiating bank will send the shipping documents to the opening bank to get
reimbursement for the payment it made to the exporter.
4)
The opening bank will check the completeness and accuracy of the shipping documents, if
they match what is required by the L/C, the opening bank will provide reimbursement to the
negotiating bank.
5)
The opening bank then notifies the importer of the receipt of the shipping documents. The
importer will complete the payment of the document to obtain the shipping document that
serves to pick up the ordered goods from the shipping agent and local customs.
Fill in the Sales Contract:
a)
Contract type and number.
b)
Name and address of the importer.
c)
Name and address of the exporter.
d)
The type and quality of the goods being traded.
e)
Manner of delivery and shipment of goods.
f)
Unit and total price of goods.
g)
Quality of goods.
h)
Tolerance of the quality and price of goods.
i)
Packaging method.
j)
Insurance.
k)
Claims and how to settle them.
l)
Required documents.
m)
Payment method.
B.
Barriers in the Sales Contract Process:
1.
The Problem of Appropriate Pricing for Companies
and Buyer
Companies in dealing with buyers from any country always try to provide the best in any
aspect, and that does not mean that the making of sales contracts does not experience
obstacles and problems. This happens because of the different responses from the buyer.
Pricing is an obstacle experienced by companies in reaching an agreement to be able to bind a
trade contract. Price issues may be taken for granted in the world of trade, but that is not a
reason for companies to consider them trivial, because if the company makes the slightest
mistake then there will be no agreement. There may be no contract and the company will
suffer losses and negotiation failure as a buyer. Price is important to the company, so
exporters do not immediately agree to the offer submitted by the buyer. If the price is too low,
the buyer may be happy to do a trade transaction with us, but the company suffers a loss so
that it cannot continue the production process and if the price is too high, the company will
never get a buyer. The methods used to overcome the buyer's offer so far are still going quite
well and positively because so far there have been no claims from buyers who agree to the
agreement. The company has a diversion method and strategy. Every offer from the buyer is
accommodated, studied carefully to pay attention to the profit and loss. Actually, if the goods
offered will increase the profit obtained due to the transfer strategy, the amount of cost or
price offered once is included and transferred to the cost of transporting the goods.
2.
Production Capacity:
Along with the increasing number of buyers which results in increased demand for products,
therefore the company is faced with the problem of how to meet the delivery schedule
proposed by the buyer. Thus, the company is required to further increase production so that it
is expected that all delivery schedules submitted by buyers can be fulfilled. This is very
important where the delivery of requests according to the schedule they request will also
increase the confidence of buyers in the company's capabilities.
The procedure for implementing the sales contract process is no different from export-
import procedures in general. This has been explained in the sales contract process which
goes through several stages, such as promotion using websites and emails which are
considered very practical, inquiries received will be replied to according to the request, the
contents of the sales contract do not harm both parties and are made in duplicate, which is
held by the importer called sales confirmation. The obstacles experienced by the company in
making sales contracts during its work in the export-import world are about determining
prices, this obstacle usually arises because it is very difficult to get a suitable price for
transactions. However, the company is very happy with negotiations because negotiations
provide their own added value, namely the company will be considered an exporter who is
open and not rigid towards importers.
Even though the sales contract is in accordance with the procedure, the company (seller)
should not use the Telegraphic Transfer (TT) payment system, because the Telegraphic
Transfer (TT) system is usually used by companies with buyers who have often cooperated
and trusted each other. However, it would be safer to use L/C because it is a definite
guarantee for exporters and importers in the payment method in accordance with the terms of
the L/C.
The obstacles experienced in making sales contracts, although they are common, should
be avoided so that the risk of failure of export-import agreements does not occur. The
company should have a maximum limit when the price is bargained so as to slightly reduce
the risk of loss. The diversion strategy to overcome the obstacles to making sales contracts
should be reviewed, although it is successful, but the risk of failure to bind contracts for
transactions can occur, the company must be firm in pricing.
Foreign language expert staff in the company must be owned in order to be able to deal
with grammatical constraints in making sales contracts, and preferably more than one foreign
language to be more competent. Foreign language mastery must be applied as a mandatory
provision that must be owned by employees in order to increase the quality of the company
and the ability of its employees.
C.
Key Clauses in Sales Contract:
1.
Scope of Work:
The goods to be sold should be clearly stated in the contract. So should the scope of work to
be performed by the exporter, such as installation, training and other services. The scope of
work to be performed is usually contained in the technical specifications, which should be
incorporated into the main contract. If necessary, other supporting services, such as
government licenses and permits required for contract execution, should also be mentioned.
2.
Price and Delivery Terms:
The total price is stated at the time of contracting, with a tolerance for price increases in the
event of certain events. The contract should also specify the currency in which payment is to
be made. Foreign exchange fluctuations can affect the company's profits. Also included in the
contract are clauses about the date and manner of delivery of the goods.
3.
Quality, Performance, and Liability:
Specify in the contract the standard of goods or performance to be met, and provide a
guarantee that it can be objectively tested. Specify the types of damages that can be covered
by the seller. Describe the limitation of liability from product quality or performance.
4.
Taxes and Duties:
It explains the tax and duty regulations that apply in both the exporting and importing
countries. As such, it is important to consider the tax and customs implications of the price of
goods. It is useful to evaluate the impact of taxation on export or import prices.
5.
Guarantees and Bonds:
Guarantees and bonds should be specified in the sales contract. Guarantees and bonds are
required to secure payment by the importer and guarantee the exporter's ability to fulfill its
obligations. Guarantees and bonds guarantee both parties, the importer and the exporter.
6.
Applicable Law and Dispute Settlement:
The basic principle of international contract law is freedom of contract. This means that the
parties are free to agree between them as to what rules to use to govern their contract. It is
possible for split jurisdiction, where the portion of the contract to be performed in the
importing country will be interpreted under the law of the importer and the portion to be
performed in the exporting country will be governed by the law of the exporting country. In
the event of a dispute, an international arbitration institution may be established as a means to
resolve the dispute.
