Terms of sale (International)

Terms of sale, or trade terms differ somewhat in international marketing from those used in the United States. In US domestic trade, it is customary to ship FOB (free on board meaning that the price is established at the door of the factory) freight collect prepaid or COD (cash, or collect on delivery) International trade terms often sound similar tot hose used in domestic business but generally have different meanings. International terms indicate how buyer and seller divide risks and obligations and therefore the costs of specific kinds of international trade transactions. When quoting prices, it is important to make them meaningful. The most frequently used international trade terms include the following:

1) CIF (Cost, Insurance, freight) to a named overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance and all transportation and miscellaneous charges to the named place of debarkation.
2) C&F (Cost and freight) to a named overseas port. The price includes the cost of the goods and transportation costs to the named place of debarkation. The cost of insurance is borne by the buyer.
3) FAS (free alongside) at a named US port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel transportation and insurance.
4) FOB (free on board) at a named inland point, at a named port of exportation or at a named vessel and port of export. The price includes the cost of the goods and delivery to the place named.
5) EX (named port of origin): The price quoted covers costs at the point of origin (for example EX, Factory) all other charges are the buyer’s concern.

A complete list of terms and their definitions can be found in Incoterms, a booklet published by the International Chamber of Commerce. It is important for the exporter to understand exactly the meanings of terms used in quotations. A simple misunderstanding regarding delivery terms may prevent the exporter from meetings contractual obligations or make that person responsible for shipping costs he or she did not intend to incur.

Getting paid on foreign Commercial Payments:

The sale of goods in other countries is further complicated by additional risks encountered when dealing with foreign customers. Risks from inadequate credit reports on customers’ problem of currency exchange controls, distance and different legal systems, as well as the cost and difficulty of collecting delinquent accounts require a different emphasis on payment systems. In US domestic trade, the typical payment procedure for established customers is an open account – that is, the goods are delivered and the customer is billed on an end of the month basis. However, the most frequently used term of payment in foreign commercial transactions for both export and import sales is a letter of credit followed closely in importance y commercial dollar or bills of exchange drawn by the seller on the buyer . Internationally, open accounts are reserved for well established customers, and cash in advance is required of only the poorest credit risks or when the character of the ,merchandise is such that not fulfilling the terms of the contract may result loss. Because if the time required for shipment of goods from one country to another, advance payment of cash is an unusually costly burden for a potential customer and places the seller at a definite competitive disadvantage.

Terms of sales are typically arranged between the buyer and seller at the time of the sale. The type of merchandise amount of money business custom credit rating of the buyer country of the buyer and whether the buyer is anew or old customer must be considered in establishing the terms of sale The five basic payment arrangements – letters of credit bills of exchange cash in advance open accounts and forfeiting – are discussed.