Understanding and creating international sales contracts is a necessary and important part of a successful exporter’s toolkit. Differences in exporters’ and importers’ traditions and backgrounds, as well as laws and regulations governing international sales, can cause complications you may not have thought about, which is why written contracts are crucial.
Defining an International Sales Contract
An international sales contract is an agreement between a buyer and a seller that identifies the parties in the transaction, the goods or services being sold, the terms and conditions of the sale, and the price to be paid. International sales fall under the United Nations Convention on Contracts for the International Sale of Goods (CISG).
A sales contract can be a verbal agreement between two parties, a collection of documents such as a purchase order and an order acknowledgement exchanged between two parties, or a formal, written agreement signed by the buyer and the seller. The type of agreement your company uses may depend on the value of the sale, the nature of the goods, and the complexity of the terms of the agreement. We always recommend having a written contract.
Exporters Should Insist On a Written Sales Contract
A written contract forces both the buyer and seller to think about the details of the sale up front. Before a contract is written, it is much easier for both parties to bargain; once a contract is created, it becomes much more difficult. A written contract also reminds both parties of the terms of the sale.
Finally, a written contract offers legal protection, explaining the details of the agreed-upon arrangement to a judge, jury or arbitrator. Contracts should be unambiguous, and written in such a way that even those who are not involved in the world of commercial exporting would understand the terms of the agreement.
Creating a Sales Contract
In real life, most exporters and importers do not sit down together to sign a single, formal document called a contract. Contracts are typically created via a process that may include an offer, acceptance, rejection and counteroffer. Not all of these components occur in every sale.
Within both the Uniform Commercial Code (UCC) and the United Nations Convention on Contracts for International Sale of Goods (CISG), there are variations on whether or not a contract exists and when or if it is accepted. We explore both of these situations in depth in this webinar on creating sales contracts, including our recommendations for whether or not to use CISG or UCC in your situation.
Your Sales Contract Negotiations
The following is a partial list of recommended terms and conditions buyers should have in their purchase orders and sellers should have in their acceptance/confirmation documents. You can find the complete list of what to include in our webinar.
- Price. (Agreed-upon price, when buyer pays for goods, currency, taxes, offsets, and payment terms.)
- Description of goods.
- Method of carriage and bill of lading.
- Transfer of ownership. (When does the buyer become owner of goods? This is not the same as Incoterms!)
- Pre-shipment inspection conducted by independent third parties.
- Post-shipment inspection and rejection. (Buyers should have a certain amount of time to inspect and determine whether goods conform to contract. If goods do not conform, what are the remedies?)
- Warranties. (Terms and conditions that should be negotiated by the buyer and the seller and included in the sales contract.)
- Incoterms. (Incoterms rules identify what the buyer and seller are each responsible for in a shipment, including packaging, inspection, export licenses, import clearance, inland carriage in buyer/sellers countries, and cargo insurance. They also indicate where the risk of loss or damage transfers from seller to buyer.)
Our Best Resource for Understanding International Sales Contracts
Our free webinar, Creating an International Sales Contract, is a great starting point for anyone in your company who engages in international trade, from purchasing agents to sales reps, logistics personnel, and even your company’s legal team. In it, you’ll learn:
- Details about why you need a written contract.
- How to choose the governing law of your sales contract.
- How to create a sales contract.
- Who wins in the battle of the forms under the UCC and CISG.
- The terms and conditions that should be negotiated by the buyer and the seller and included in the sales contract.
- Incoterms® 2020 rules and how they apply to your transaction.
Click below to watch the webinar now—and move toward clarity and confidence in creating international sales contracts.