Commerce department international trade

Incoterms obviously save a great deal of work in contract drafting. Compare the two versions of the delivery clause below:

The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990).

For the equipment listed in Annex 1 the price is for delivery free on board the carrying vessel designated by the Buyer at the port of Beira including the cost of packing, as well as expenses incurred before loading the equipment on board the carrying vessel.

The first wording—using an Incoterrrt—is more than simple shorthand: it incorporates six pages of the ICC booklet Incoterms 1990 specifying numerous duties of both buyer and exporter. The exporter, for example, must "Deliver the goods on board the vessel named by the buyer..." and 'pay all costs relating to the goods until such time as they have passed the ship's rail."³⁶

A word of caution on Incoterms: the 1990 Incoterms are radically new. Some old terms have disappeared: FOT and FOR (Free On Truck and Free on Rail) have been replaced by FCA; C&F has been renamed CFR. Further, some traditional terms now have very restricted meanings: FOB, for example, applies only to transport by ship; for other means of trans­port, the correct "FOB equivalent" is now FCA. Also remember that Incoterms apply only to international trade; for trade within a country, Incoterms are not appropriate.

Two questions often arise about Incoterms: first, is it necessary to state in the contract that FOB, CIF, and so on are Incoterms? And secondly, what happens if the "small print" of Incoterms 1990 conflicts with a provision of the contract? Let's look at these issues.

Specifying Incoterms

Is the specification, "Incoterms 1990," really needed? In fact, it is neces­sary because FOB and CIF are also common terms in many countries with different commercial traditions, for example in the United States.³⁷ Unfortunately, American and ICC usage of the terms do not agree: for example in the U.S.:

The term FOB or "free on board," may be used with reference to the seller's city, the buyer's city, or an intermediate city. It may also be used with reference to a named carrier, vessel, car or other vehicle.³⁸

FURTHER READING

Which of the following terms are correctly used according to Incocerms 19907 If your answer is "No," give your reasons. (Note: .There may be more than one correct answer in each section.

1. A contract requiring the exporter to send the conntact goods by road from Kenva to Zambia with freight paid by the exporter.

a. C&F Lusaka YES NO

b. CFR Lusaka YES NO

c. CPTLusaka YES NO

d. CFR Nairobi YES NO

e. FOT Nairobi YES NO

a. FAS Beira YES NO

b. FOB Beira YES NO

c. FCA Beira YES NO

d. FOB Dares Salaam YES NO
3. A contract requiring an exporter in Ethiopia to send the contract goods by air for delivery in Windhoek, Namibia

a. CIF Windhoek YES NO

b. CIP Windhoek YES NO

c. DDU Windhoek YES NO

d. DES Windhoek YES NO
1. a. No. Not a 1990 Incoterm b. No. Ship term only

c. Yes d. No. CFR is not to Nairobi e. No. Not an Incoterm

2. a. Yes b. Yes c. Yes d. No. Shipment is in Beira

3. a. No. Shipment only term b. Yes c. Yes d. No. Ship only term
Delivery where?


Translate into Vietnamese

Sample 2. CONTRACT FOR LUBRICANTS.

CONTRACT No 01292

Singapore December 29^th, 19..

This contract is made between Vietnam National Petroleum Export Import Corporation (PETROLIMEX) 1, Kham Thien, Hanoi (Socialist Republic of Vietnam) Cable address: "Petrolimex Hanoi" (hereinafter reference to as BUYER) and AGIP PETROLI S. p. A. – Singapore Branch (reference to as SELLER) whereby it is agreed as follows:
1. Object of the Contract

SELLER undertakes to deliver lo BUYER in Vietnam .on CFR basis the following lubricants:

The above prices are expressed in US dollars per metric ton net CFR port of Vietnam, deliveries as per Art. 6 below, and remain fixed during the term of this contract and provided that an Irrevocable L/C in respect thereof has been notified to Seller by Singapore Indosuez Bank prior to 31/10/19 ..

The specification of lubricants in drums supplied under this Contract shall conform to the specifications set out in Appendix 1 attached to hereto, which is an integral part of this Contract; Origin of products will be Italy, Holland or Singapore at SELLER'S option.

Packaged products will be delivered in AGIP standard new steel drums, of about 1.2/1.0 mm thickness. The drums will be filled at 180 kg not weight.

4. Payment

4.1. SELLER will be paid by .Irrevocable L/C opened by Vietcombank'Hanoi and advised to Seller through Indosuez Bank in Singapore payable at sight against first presentation of full set of shipping documents

4.2 SELLER shall effect first shipment within 30 days from date SELLER receives notification of irrevocable L/C

4.3. All costs of L/C in Singapore shall be for SELLER'S account

4.4. All L/C amendment's cost (if any) caused by the failure of the Buyer to follow the terms and conditions of payment will be for BUYER'S account

4.5. The under mentioned documents will be forwarded to buyer's Bank immediately after loading date

a) Signed commercial invoice in 3 originals

b) Clean "Shipped on Board" Ocean Bill of Lading in complete set of at least 3 original 3 non- negotiable copies signed made out to order of "Vietcombank" Hanoi

c) Quality/Quantity certificate issued by the Chamber of Commerce in triplicate

d) Packing List in triplicate

e) Confirmation of cable advise for shipment in triplicate

f) Receipt of shipmaster acknowledging due receipt of all documents in triplicate non - negotiable copies of each document, for handing same over to PETROLIMEX Haiphong or PETROLIMEX Hochiminh City

In case of delay in payment (if any), BUYER shall remit to SELLER interest calculated from the date of presentation of documents to the bank in Singapore to the date of effective receipt of due amount. The interest will be calculated at LIBOR RATE (6 months) plus 1.5 per cent

Products will be delivered in partial shipments to be agreed upon.

In case of, transshipment SELLER shall give to BUYER all necessary detail and information

7. Insurance

Insurance shall be effected by BUYER.

8. Delivery Terms

CFR Vietnamese ports as per Art. 1. Goods to be delivered in partial shipments accordance with Art. 6

In case of non - conformity of the quality of the products actually delivered by SELLER with the Contract specifications, any claim concerning the quality of the goods must be presented to SELLER within three months from the date of delivery.

No claims shall be accepted by SELLER party after expiry of the above period

20. Contingencies

Should any circumstances arise which prevent the complete or partial fulfillment by any of the parties of their respective obligations under this contract, namely: fire, ice conditions or any other acts of the elements, war, military operations of any character, blockade, prohibition of export or import or any other circumstances beyond the control of the parties, the time stipulated for the fulfillment of the obligations shall be extended for a period equal to that during which such circumstances last.

If the such circumstances last for more than 20 days, any delivery or deliveries which are to be performed under this contract within that period may be cancelled on the declaration of either party, and if the above circumstances last for more than. 40 days, neither party shall have the right to make a demand upon the other Party for compensation for any possible damage.

A party unable to meet its obligations under this Contract shall immediately advise the other party the time of commencement and the termination of the circumstances preventing the fulfillment of its obligations.

Certificates issued by the respective Chamber of Commerce of seller's or buyer's country shall be sufficient proof of such circumstances and their duration.

11. Arbitration

All disputes and differences which may arise out of the present contract or in connection with it shall be settled, if possible, in an amicable way.

In the event that it is not possible to settle them in an amicable way, the parties shall refer the matter to Arbitration in the International Chamber of Commerce in Paris

12. Other Conditions

12.1 Neither Party is entitled to transfer is right and obligations under the present Contract to a third party without the other Party's previous written consent

12.2 After the signing of the present Contract, all previous negotiations and correspondence between the Parties in connection with it shall be considered null and void

12.3 All amendments and additions to the present Contract are valid only if they are made out in writing and signed by both Parties

12.4 All taxes, customs and other duties levied in Vietnam on the contracted Products shall be for buyer's account.

SELLER: BUYER:

AGIP PETROLI S.p.A PETROLIMEX

(Signed) (Signed)

Patrick FOK Nguyen Manh

Lubricants Manager Vice General Director

Product: Agip Gr Mu3

NLGI consistency: 3

Worked penetration: 230 dmm

ASTM dropping point: 195 C degrees.


CHAPTER 2: NEGOTIATING PRICE & PAYMENT
2.1. Export Pricing Strategies
THE PROBLEM

In many negotiations, as soon as the exporter states a price, the buyer begins to demand concessions about delivery time, method of payment, and so on. Concessions that can quickly make the deal unprofitable. How can the exporter avoid the "price trap"?

Trong

THE PRINCIPLE

The exporter must perceive and preserve the interdependence of every aspect of an export negotiation. A price quotation is based on a set of assumptions about delivery, payment and warranty terms. The contract price must reflect any change in. or renegotiation of, these assumptions.

Nhà

IN MORE DEPTH

Exporting is not difficult; the problem is making money at it. Sometimes first-time exporters fail to understand how the many terms of a contract relate to each other: a longer warranty period, fur example, creates higher costs—the contract price should reflect these costs. An extension of the payment period creates higher costs— again the contract price should reflect the extension. In fact. virtually every problem that the two sides normally negotiate has a bearing on price. Mostly the buyer's suggestions tend to raise the price, but a lowering of the price is possible too. Let's use an example to study this relationship between price and other contract terms in more detail.

In this lengthy example, all negotiating decisions bear directly on the price of the product. Naturally other points are open to negotiation; this is just a sampling. But the general point is clear: a manager like Royalstone who knows his product and who has thoroughly analyzed his costs is unlikely to lose money on an export deal—unless, of course, he decides to do so. If Royalstone is eager to win Smart as a regular customer, he may be ready to sell to her at a loss first time around. Or his factory may be so short of work that he is prepared to accept any job—even a loss-maker. Or the Verbenan government may make exporting so attractive with export incentives that Royalstone can trade at a loss but still show a profit at the end of the day.

The general point is this: a good manager knows that almost every decision made during a negotiation influences price—an excellent manager can put a dollars--and-cents figure on this influence.
CASE STUDY

In a Jam

Gorm Trading exports canned foods from Verbena. Gorm is negotiating of 600 cases of apricot jam by road to a neighboring country. Gorm’s price per case is $20. The price is based on delivery FCA with no special packaging or labeling. The jam has a six-month expiry date stamped on the label. Payment will be by irrevocable, confirmed, at-sight letter of credit. Delivery date is two days after the opening of the credit. Decide what influence each change listed below will have on the price per case.

(A) NO CHANGE (E) MINIMAL DECREASE

(B) MINIMAL INCREASE (F) APPRECIABLE DECREASE

(C) APPRECIABLE INCREASE (G) LARGE DECREASE

(D) LARGE INCREASE

1. Reduction of the order from 600 cases to 300 cases.

2. Delivery EXW (Exporter must have the goods ready for collection in his warehouse.)

3. Replacement of single flavor (apricot jam( by a range of 10 flavors, some of which are “exotic.”

4. Change of labeling to show exact nutritional values and ingredients (not normally specified by Gorm).

5. Change of payment from letter of credit to open account payment due 45 days from date of invoice.

6. Replacement of a single delivery with delivery in ten installments of 60 cases over a period of one year.

7. Increase of the expiry period from six months from date of manufacture to two years.
1. C. 2. E 3. B-C 4. C 5. C 6. C 7. C
Translate into Vietnamese

FORM 3: ABC’S CONTRACT

ABC CORPORATION, as SELLER, confirms having sold to BUYER the following goods by contract made on the date below and on the terms and conditions SET FORTH HEREUNDER AND ON THE REVERSE SIDE HEREOF.

BUYER

CONTRACT NO

BUYER'S REFERENCE NO.

GOODS

Time of Shipment Transshipments permitted/not permitted

Port of Loading Partial shipments permitted/not permitted

Port of Destination

PACKING: MARKING:

PAYMENT:

The letter of credit shall bear this Contract's number as reference

INSURANCE

To be covered by Buyer/Seller

Insured Amount Condition

INSPECTION:

OTHER TERMS & CONDITIONS:

ACCEPTED ON ....................20...

BY:

Please sign and return one copy.

SEE TERMS AND CONDITIONS ON REVERSE SIDE

1.October ABC'S CONTRACT

GENERAL TERMS AND CONDITIONS

The obligations of Seller to ship or deliver the goods specified on the face of this Contract ("Goods") by the time or within the period specified on the face of this Contract shall be subject to the availability of the vessel or the vessel's space. Trách nhiệm của bên Bán chuyển giao hàng được ghi trong Hợp đồng (gọi là “hàng hóa”) đúng hay trong thời hạn quy định trong hợp đồng tùy thuộc vào tình hình thuê tàu hay diện tích chỡ hàng trên tàu.

If, under the terms of this Contract, Buyer is to secure or arrange for the vessel or vessel's space, Buyer shall secure or arrange for the necessary vessel or vessel's space on berth terms basis and give Seller shipping instructions within a reasonable time prior to shipment, including but not limited to the name and detailed schedule of the vessel. Theo điều kiện hợp đồng, nếu bên Mua lo việc thuê tàu hay mua chỗ trống trên tàu, thì phải bảo đảm giữ chỗ để hàng sát thành tàu và không chen với hàng hóa của người khác, đồng thời phải báo cho bên bán biết các chi tiết vận chuyển trong khoảng thời gian hợp lý trước khi chuyển hàng, trong đó bao gồm tên, lịch chi tiết của tàu biển, vv… If Buyer fails to give such instructions within a reasonable time prior to shipment, Seller may, at its sole discretion and at Buyer's risk and account, arrange for the vessel or the vessel's space and make shipment of the Goods, without prejudice and in addition to any other rights and remedies Seller may have under this Contract or at law or in equity or otherwise. Nếu bên mua không thông báo các thông tin vừa nói trong thời hạn hợp lý, bên bán có thể tùy nghi, và Bên mua sẽ chịu mọi rũi ro, chi phí, thuê tàu hay đặt chỗ trên tàu và vận chuyển hàng, mà bên kia không được khiếu nại và đòi thêm quyền hạn khác để bù đắp mà theo hợp đồng này hay theo luật định hay theo tập quán, vv…. bên bán có thể có.
Trong trường hợp chuyển giao hàng từng phần, bất cứ trường hợp trễ nải hay không giao một phần thì sẽ không bị xem là vi phạm hợp đồng này và không được suy ra là bên mua có quyền hủy hợp đồng hay từ chối chấp nhận toàn bộ những lần giao hàng khác.

In case of shipment or delivery installments, any delay or failure in shipment of one installment shall not be deemed a breach of this Contract giving rise to a right of Buyer to cancel this Contract or refuse to accept performance with respect to other installments.

If payment for the Goods shall be made by a letter of credit, Buyer shall establish, in favor of Seller, an irrevocable letter of credit through a prime bank of good international repute immediately after the conclusion of this Contract in a form and upon terms satisfactory to Seller. If Buyer fails to make any due payment, to establish a letter of credit or otherwise to perform its obligations hereunder, Seller may demand that Buyer provide, within a reasonable time, adequate assurance satisfactory to Seller of the due performance of this Contract and may delay delivery until such assurance is given.

Nếu thanh toán được thực hiện bằng L/C, bên mua phải mở L/C không thể hủy ngang mà bên bán là người thụ hưởng tại 1 ngân hàng hạng nhất có tiếng trên quốc tế ngay sau khi ký kết hợp đồng này theo hình thức và điều kiện đúng theo yêu cầu của bên bán.

Nếu bên mua không chịu thanh toán đúng hạn, mở tín dụng thư, hay nói cách khác, thực hiện những nghĩa vụ dưới đây, bên bán có thể yêu cầu bên mua, trong thời hạn hợp lý, cung cấp sự bảo đảm đầy đủ theo yêu cầu của bên bán và bên bán có thể hoãn giao hàng cho đến khi nào bên mua thực hiện bảo đảm thanh toán như đã nói.

Buyer shall pay the price specified on the face of this Contract without set-off counterclaim, recoupment or other similar rights which Buyer may have against Seller and which shall be exercised in separate proceedings between Buyer and Seller. Bên mua phải thanh toán giá ghi cụ thể trên hợp đồng này không được trả giá để thoái thác, hay những trường hợp tương tự mà bên mua có thể thực hiện để gây khó khăn cho bên bán, và những quyền này bên bán và bên mua chỉ được sử dụng trước khi ký kết hợp đồng mà thôi.

Any new, additional or increased freight rates, surcharges (bunker, currency, congestion or other surcharges), taxes, customs duties, export or import surcharges or other governmental charges, or insurance premiums, which may be incurred by Seller with respect to the Goods after the conclusion of this Contract shall be for the account of Buyer and shall be reimbursed to Seller by Buyer on demand. Nếu có thêm khoảng tăng giá cước vận chuyển, phụ thu (ụ để hàng, đổi ngoại tệ, tắc đường hay những phụ phí khác), thuế, thuế quan, phụ thu XNK hay các loại lệ phí đóng cho chính phủ, hay mua bảo hiểm liên quan đến hàng hóa, mà bên bán phải trả sau khi có hợp đồng này, mà lẻ ra bên mua phải chịu và phải được bên mua hoàn lại cho bên bán theo yêu cầu.

If Buyer fails to pay for the Goods in accordance with this Contract, Buyer shall pay to Seller as liquidated damages and not as a penalty overdue interest at the rate of the lower of eighteen percent (18%) per annum or the maximum interest rate permitted by the laws of Buyer's country, calculated from the date for such payment until the actual date of payment calculated on the 360 day-a-year basis for the actual number of days elapsed. Nếu bên mua không thanh toán theo đúng hợp đồng này, bên mua phải chịu bồi thường trên cơ sở hợp lý và không được phạt có tính chất răn đe hay phạt chiếu lệ theo kiểu ấn định mức phạt thấp hơn lãi suất 18% năm tính trên lãi suất thanh toán nợ quá hạn hay mức lãi suất tối đa mà luật pháp của nước người mua cho phép, tính kể từ ngày phải thanh toán cho đến ngày thực sự thanh toán theo năm lịch 360 ngày để biết số ngày thực tế quá hạn thanh toán.

Because of Noun phrase

Because the consignment was delayed, the seller had to be liable for compensation.

Because of the delayed consignment, the seller had to be liable for compensation.

In case of the delayed consignment, the seller had to be liable for compensation.

The rights and remedies of Seller hereunder are cumulative and in addition to Seller's rights, powers and remedies existing at law or in equity or otherwise.

Nothing herein contained shall be construed as transferring any patent, trademark, utility model, design, copyright, mask word or any other intellectual property rights in the Goods, as such rights being expressly reserved to the true and lawful owners thereof.

Seller shall be neither responsible nor liable for any infringement or unauthorized use with regard to any patent, trademark, utility model, design, copyright, mask work or any other intellectual property rights.

6) Warranty, claim

Unless expressly stipulated on the face of this contract, seller makes no warranty or condition, expressly or impliedly, 'as to the fitness or suitability of the goods for any particular purpose or use or the merchantability thereof.

If any warranty exists. Seller's liability shall be limited to replacement or repair of the defective Goods.

Any claim by Buyer of whatever nature arising under or in relation to this Contract shall be made by registered airmail within thirty (30) days after the arrival of the Goods at the port of destination, or solely in respect to a claim alleging the existence of a latent defect in the Goods, within six (6) months after the arrival of the Goods at the port of destination, and any such claim shall contain full particulars with evidence certified by an authorized surveyor.

Seller shall not be responsible, whether in contract or warranty, tort or on any other basis, to Buyer for any special, incidental, consequential, indirect or exemplary damages, and in no event shall Seller's total liability on any or all claims from Buyer exceed the price of the Goods.

(1) All disputes, controversies or differences arising out of or in relation to this Contract or the breach thereof which cannot be settled by mutual accord without undue delay shall be settled by arbitration in Tokyo, Japan, in accordance with the rules of procedure of the Japan Commercial Arbitration Association; the award of arbitration shall be final and binding upon both parties, and judgment on sucli award may be entered in any court or tribunal having jurisdiction thereof; this Contract shall be, in all respects, governed by and construed in accordance with the laws of Japan; the trade terms herein used, such as FOB, CFR and CIF, shall be interpreted in accordance with "INCOTERMS 2000".

(2) The failure of Seller at any time to require full performance by Buyer of the terms hereof -shall not affect the right of Seller to enforce the same; the waiver by Seller of any breach of any provision of this Contract shall not be construed as a waiver of any succeeding breach of such provision or waiver of the provision itself.

(3) This Contract constitutes the entire agreement between the parties hereto and supersedes all prior or contemporaneous communications, agreements or undertakings with regard to the subject matter hereof; this Contract may not be modified or terminated except by a written agreement of Seller and Buyer.

(4) Buyer shall not transfer or assign this Contract or any part thereof without Seller's prior written consent.
2.2 THE FIVE STEPS IN NEGOTIATING PAYMENT
THE PROBLEM

For the exporter, the great fear is non-payment. Most developed countries offer export-insurance, to cover this and other risks, but such insurance is rare in developing countries. How can the exporter create payment terms that ensure payment?

In negotiating payment, the sxporter should keep five Steps in mind, five issues that the export agreement must adequately cover.

Most international trade is conducted on a cash basis—goods against cash. Sometimes, however, goods are traded against goods (barter trade), and sometimes the exporter gives the buyer a credit—the buyer can pay by installments over a period of time. Barter and credit transactions are a subject in themselves. Here we shall look only at cash transactions.

♦ Payment on open account secured by export credit insurance;

♦ Payment on open account secured by a payment guarantee; and

♦ Payment by letter of credit.

In private life, small purchases (in a supermarket, for example) are sold cash on delivery. If you buy household furniture, you will usually receive the invoice with a certain amount of time to pay it—cash against invoice. Cash against invoice is the typical open account transaction. If, however, the furniture store distrusts you, it will ask for a 100% prepayment as security—cash with order: that way they are completely safe.
All these transactions have exact equivalents in export trade. Obviously, however, the word "cash" in the international context does not usually mean coins and notes. (Occasionally, perhaps, a buyer pays for goods by giving the exporter a briefcase full of money, but such payments generally reflect a wish to escape scrutiny by the central bank or other authorities.) To the exporter cash normally means checks (cheques) or bank transfers.

Exporters who are paid on open account are seriously at risk. The prob­lem is obvious: if anything goes wrong—if the check is not honored by the bank for example, or if the buyer files for bankruptcy or simply disap­pears—the exporter is in a poor position to claim payment. One solution is to ask for 100% prepayment—as in the furniture store example above. The buyer, however, is unlikely to agree to this arrangement.
There are two common approaches to providing the exporter with an acceptable level of security: one approach is to persuade a third party to pay the epxorter if the buyer fails to do so. A typical third party is a bank which may issue a bank guarantee, paid for by the buyer. An alternative third party is an insurance that issues an export credit insurance policy covering the risk of non-payment: in this case, the exporter pays the costs. The second approach is to position the money the money with a bank in the country of the xporter by means of letter of credit, and to allow the exporter collect the money when the goods are delivered. The letter of guarantee, export credit insurance, and the letter of credit – each of these approaches is complex enough to require a section in its own right.
Step 2. Timing

In negotiating any cash-against-invoice payment- whether secured or not- it is important to consider the time/payment structure. Payment against invoice is rarely made immediately. Most buyers wait a while before paying: the delay gives them use of what is, in fact, the exporter’s money. The exporter, of course, suffers from delay: he must borrow money, perhaps at a high rate of interest, until he is paid. To speed up payment, most exporters offer a discount for early payment, for example 1% discount if payment is made within 30 days of the date of invoice. This discount is often attractive for both buyer and exporter: the buyer saves on the invoice price, while the exporter substantially, improves his cash flow. If the parties say nothing at all, then payment is due, in most jurisdictions on delivery.

The date of payment for a single sale is simply regualated. In an ongoing contract- delivery involving partial shipments, periodic shipments, or a spare parts supply contract, for example- the aprties must negotiate a chain of dates. These are calendar dates (for example, 30^th June) or interval times (for example, within 30 days of the date of invoice).
Step 3. Place of Payment

When Tony Mino instructs his bank in F.speranza to pay Double-A Ltd. in Verbena, he begins a chain of events that often takes months to complete. Perhaps the National Bank of Esperanza has no funds to make foreign transfers; perhaps inefficiency delays payment. To avoid the dangers of slow payment, exporters try to protect themselves with a clause like this:

Payment shall be deemed to have been made only when the contract is paid into the seller’s bank account and is at the seller’s full disposal.

In fact, this is not unreasonable: under the Vienna Sales Convention, for example, payment is normally deemed to be made onl\ when the cash is available at "the seller's place of business" (Article 57) Negotiators must work this out carefully -the conflicts of interest are clear:

As with delivery, delay in payment might be excused during a grace period, though this is unusual. More commonly, a force majeure event excuses delay. In fact, the force majeure excuse for delay seldom makes sense in the context of payment; most exporters try to resist it. In principle, any payment made after the agreed date of payment is in delay.

What happens when payment is late? It is generally agreed in most legal systems that the exporter has a right to be compensated for losses due to late payment. What happens in practice depends on the payment agreement negotiated by the parties. Let's start with the worst case: payment on open account, with no security and with no agreement on late payment. In this case, the exporter tries to exert pressure on the buyer— but this is difficult. The exporter writes letters, makes telephone calls, waits and hopes. Every day that payment is late costs money—losses that the exporter can, in practice, do little about—without beginning legal action. Considerably better is the situation of the exporter whose contract with the buyer regulates late payment. A typical contract clause:

Delayed Payment

If payment of any sum payable is delayed, the Buyer shall be entitled to receive interest on the amount unpaid during the period of delay. The interest shall be at an annual rate three percentage points above the discount rate of the central bank in the Seller's count ry.

When the exporter is finally paid, the interest payable is simply added to the outstanding sum.

For force majeure, sec Chapter 1, Section 2. The force majeure clause suggested by the International Chamber of Commerce, for example, states that payment of interest on overdue sums payable to the seller is not excused by force majeure.

1. Payment should be negotiated so that the exporter secures prompt, correct payment.

2. Payment on open account is often timed so that early payment secures a discount for the buyer; this benefits the exporter by improving cash flow.

3. The exporter prefers the place of payment to be his own bank account; payment is not deemed to be made until the money is at his disposal.

4. In most contracts nothing, not even force majeure, excuses late payment.

5. Late payment causes harm to the exporter—the bank interest he must pay while waiting For his money. This interest should be compensated to him by the buyer under the terms of the contract.

Study the price and payment clause below. It is taken from an export contract that lost the exporter a great deal of money. What is missing?

1. Does the clause specify how payment will be made? YES NO

2. Does the clause specify when payment is due? YES NO

3. Does the clause say where the money must be before the buyer is deemed to have paid? YES NO

4. Does the clause define delay in payment? YES NO

5. Does the clause mention the consequences of delay? YES NO

6. What is payment due if the parties say nothing in their agreement?
The answer to questions 1-5 is “No.” A contract like this relies heavily on the applicable law to fill in the gaps: the exporter often finds himself very unhappy with the decisions that the law makes.

Question 6: If the parties say nothing, payment is usually due on delivery.
CONCEPT REVIEW

Below is the first part of a payment guarantee issued in standard bank form. Study it, and then answer the questions.