NEGOTIATION OF SALE TIPS

One-half of all insurance submissions to the Ex-Im Bank are rejected for one reason or another.   Excluding the Country Limitation Schedule (restrictions of sale to private or public buyers), most commonly is the establishment of credit worthiness on the part of the buyer.   If an application is rejected, come back with different negotiated terms that will reduce the risk of payment.  You may also want to start at the very minimum of sales, such as one unit of product for a demonstration shipment.   The most you will loose is the value of the one unit.   However, the progression of successful transactions is an ideal way to create a credit history for your new buyer. The following are some key business terms of contracts that may give you a range of options of terms that may be of assistance as well as ecoterms that are commonly used.

OPEN ACCOUNT (Open Credit): A credit or charge based on credit standing on balance currently owed at any given time.  Generally is more competitive but more of a risk factor on customers not established.  When used with the Shot-Term Single Buyer policy, it is a common sales offering.   Open Accounts with Multiple Buyer policies are more difficult to approve because of the future addition of new buyers to contracts.

SIGHT / TIME DRAFT DOCUMENTS AGAINST ACCEPTANCE  (SDDA)

This is the nearest transaction to a “COD”.   The seller ships before getting paid.  The buyer does not receive the documents and gain possession of goods until payment is made to a collecting bank.   The buyer receives goods after signing a sight (or a time draft) promising to pay in a certain amount of time.   The seller has, in effect of the control of the negotiable instrument rather than an account receivable.  The risk in this process is that the buyer may not contact the collecting bank to acknowledge the presentation or acceptance of documents.   The collecting bank has no obligation to collect the debt.   Delivery of the proof of shipment documents (bill of lading) and other documents should be delivered with return international receipt or some proof of delivery.   Insurance of payment to cover this risk is advisable.

CASH AGAINST DOCUMENTS. (CAD)  The buyer appoints their bank as consignee for the shipment as the paying agent.   Shipment is done by freight forwarder.  The freight forwarder will cosign the shipment to the bank by a document such as the Airway Bill, Ocean Bill of Lading, which is made out to the bank.   The freight papers are sent to the buyer’s bank (Waybill, draft, Bill of Lading, and invoice) where at sight (or designated date, if negotiated), the bank must accept the draft and make payment against the full invoice amount by wire transfer to the seller’s bank.  The buyer’s bank will release the freight papers to the buyer to clear shipment through customs.  In a sense, the buyer’s bank functions as an escrow for the buyer and seller.

UNCONFIRMED IRREVOCABLE LETTER OF CREDIT (UILC) This process is highly used with newer buyers because of the many safeguards giving it a lower risk factor, but is a more expensive transaction service.  After negotiations of terms and conditions, the agreed upon declaration is presented to the buyer’s bank to request a Letter of Credit specifying the terms and conditions.   This is commonly initiated through the seller’s bank for delivery to the buyer who takes the document, if found in order, to the buyer’s bank where funds are reserved for delivery to the bank so indicated on the Letter of Credit Application.   The buyer’s bank has a working bank in the US that is charged with releasing the stated amount in US dollars to the seller’s bank.  The confirming process is generally not used with a transaction guarantee policy, but is commonly used if no guarantee insurance is present.   Making the Letter of Credit irrevocable allows the terms defined to be followed exactly.   For this reason the documentation used must accurately reflect compliance in order for the buyer’s bank to release the funds.

PROMISARY NOTE.   A simple document of statement of payment on a date or presentation by sight of a draft request of common use.   Used mostly with well-established buyers.

ECOTERMS:  Terms commonly used to indicate conditions of agreement are called Ecoterms.   It is also a good policy to clearly state the terms and conditions in any agreement.

FOB Free on Board.  Usually indicating the port of origin.  The cost is borne by the seller up to that point.   A common statement is FOB Seller’s Docks with an indicator of that transfer point.   A FOB may indicate any location to indicate the seller’s responsibility of cost to that location where after that point, the seller is free of responsibility of cost.

CFR or C&F Cost and freight to port of designation at seller’s expense

CIF Cost, Insurance, and Freight to port of designation at seller’s expense

EXW / EXF  Ex Works / Ex Factory  Goods available at seller’s premises.  The buyer is responsible for loading.  However, it is common for the seller to freely load the goods for shipment with a freight forwarder.

CIP Carriage and Insurance Paid

DAF Delivery at Frontier    Delivery of goods at a specific location.

FCA Free Carrier.  For customers that need added concessions in order to make the sale, the seller may assist the buyer in assuming expenses to a designated location.  Commonly it is a port but it can be any destination along the transport route.   For example, the goods may be trucked to a rail transport and the location indicated may be FOT (Free on Truck) or FOR (Free on Rail) but other transport is the buyer’s cost.  Also commonly used with RO/RO (Roll on, roll off) indicators.

FAS Free Alongside Ship.  Seller has full cost of delivery up to the dock and placed in access to equipment to load on ship.  Burden of loss is held by seller.  For this reason cargo insurance (inland marine) is advisable.

DES  Delivered Ex Ship.  Paid by seller to designation but buyer pays for unloading, customs, insurance, cargo insurance if needed.

DEQ  Delivered Ex Quary.  Paid by seller and is responsible for unloading, customs clearances, custom duties but buyer pays for all other expenses including insurances.

DDU Delivered Duty Unpaid

DDP  Delivered Duty Paid   The status of either the import duty paid  or unpaid by the seller.   In absence of an indicator, it should be stated that the buyer is responsible for duties and verification that the goods are able to be received within a country.

Market World, Inc. is not in performance of legal recommendations for transport and sales.  The above information is for general information.   It is possible that your unique situation may require special contract services of international law to establish a specific contract.