Sales contract & commercial documents

Sales Contract

 & Related Documents

International Sales Contract 

Two important Governing Entities 

´The United Nations Convention on Contracts for the International Sale of Goods (CISG) is the main convention for international sale of goods. Established by UNCITRAL (United Nations Commission on International Trade Law).

´The Convention governs the conclusion of the sale contract and buyer & seller obligations, including respective remedies.

In other words, UNCITRAL main business is Harmonization and modernization of rules on international business

International Sales Contract-How it works??

´Technically, a contract is not required for two or more parties to do business  in international trade.

´The preferred method is to have written and signed agreements  entered into by authorized parties that demonstrate offer, Acceptance and Consideration

´Business transaction can be conducted without a written contract , but should be supported by documentation that demonstrates offer, Acceptance and Consideration

´Formation of a contract is based on the documentation stream, intent of the parties and/ or practice of the trade.

International Sales Contract-Key Content &  Clauses (Found in CISG and/or ICC)

´Contract date

´Identification of the Parties – Full address. 

´Authority to enter into contracts - Authorized person

´Applicable law

´Severability

´Dispute resolution

´Incoterms Rule 2010

´Description of the goods

´Quality, grade size and conditions

´Weights and Quantities

´Substitutions

´Preparation, stuffing &bracing of containers

´Delivery of the goods by the seller*

´Price of the goods

´Currency of the Sale

´Warranty and repair of goods

´Receipt of the goods by the buyer*

´Country of origin  of the goods’

´Type and timing of payment

´Export Packaging*

´Notice to the buyer or seller*

´´Mode of Transport

´Transportation Cost*

´Contract of Carriage*

´Provision of Commercial documents*

´Provision of Transport documents*

´Inspection of the goods*

´Diversion clause (anti diversion)/destination control statement

´Transfer of risk*

´Cargo insurance*

´´Claims

´Transfer of title

´Penalty clause for late shipments

´Customs Clearance*

´Payment customs duties and taxes

´Amendments

´Assignments (contractual obligation)

´Force Majeure

Documentation Framework:
Commercial Documents

Objectives of Commercial documents:

´To effect physical transfer of goods from the exporter’s place to the importer’s place

´To transfer property and title of goods from exporter to importer and

´Realization/Fulfilment  of export proceeds from the exporter to the importer

´Commercial documents may be classified as Principle Export Documents and Auxiliary documents.

´Principle Export Documents: These are the eight documents, which are required to be sent by the exporter to the importer.

Documentation Framework:
Commercial documents

Principle Export Documents are :

´Commercial invoice

´Packing list

´Certificate of inspection/quality control(where required)

´Bill of Lading/combined Export Documentation

´Shipping Advice

´Certificate of Origin

´Insurance Certificate/Policy (in case of CIF export Sales contract)

´Bill of Exchange

 ´Commercial invoice : It is a customs document. It is used as a customs declaration provided by the person while exporting an item across international borders.

´Although there is no standard format, the document must include a few specific pieces of information such as the parties involved in the shipping transaction, the goods being transported, the country of manufacture, and the Harmonized System codes for those goods.

´A commercial invoice must often include a statement certifying that the invoice is true, and a signature.

´A commercial invoice is used tariffs, international commercial terms (like the Cost in a CIF) and is commonly used for customs purposes.

´Packing List: It is Itemized list of usually included in each shipping package (Bottle, box, can, carton, cover, pouch, sack, wrap, etc.) giving the quantity, description, and weight of the contents.

´Prepared by the shipper and sent to the consignee for accurate tallying of the delivered goods.

´Certificate of inspection: When shipping high-value products or when you are dealing with a very conscientious customer, an inspection certificate might be requested.

´An inspection certificate provides proof that what you are shipping is, in fact, what the customer ordered, and is also of good quality.

´Certificate of inspection:Generally a manufacturer furnishes the certificate . It can be furnished directly to a buyer or direct to a buyer’s bank.

´In the case of presenting to a buyer’s bank, that is precipitated by the request of a Letter of Credit payment transaction that spells out specifically an inspection certificate is required in order to fulfill payment obligations.

Shipment Advice:

´Once after shipping goods from seller’s place, Seller need to send shipping details with complete details of carriers and expected time of arrival at buyer’s place.

´Shipping advice helps to track the goods as per details and importer can plan import clearance procedures accordingly.

´If buyer not received documents in time from their bank for taking delivery of goods he can keep an alert to get the documents and make sure, all documents are in order for customs clearance and take delivery.

Contents Of Shipping Advice

´(i)The purchase order or Letter of Credit number, or any other reference number of contract of the said shipment if necessary.

´(ii) Exporter’s commercial invoice number and date.

´(iii) Bill of Lading number and date.

´(iv)Shipping carrier’s name with liner name. e.g., for sea shipments, MAERSK LINE, EVERGREEN,MSC,HYUNDAI etc.

´(v) If any freight forwarders involved, their complete contact details at destination with telephone, emails and key contact person’s name.

´(vi)Name of vessel loaded at port of loading

´(vii) Expected time of arrival at final destination.

´(viii) If goods are trans-shipped, the details of transshipment port and the details of vessel  with ETA at destination.

´Updating transshipment sailing details once, vessel sailed from transshipment port  details.

Documentation Framework:
Commercial Documents

´Once updating shipment advice, the exporter has to keenly monitor about the vessel details and make sure, the details updated with the buyer is correct, once after goods moved out of load port.

´If any changes in vessel details and expected time of arrival at final destination has to be updated accordingly with the overseas buyer.

´Sending a Shipping Advice to overseas importer is a good practice in international trade of exports and imports.

´Certificate of origin: is a document used in international trade. In a printed form or as an electronic document, it is completed by the exporter and certified by a recognized issuing body, attesting that the goods in a particular export shipment have been produced, manufactured or processed in a particular country.

´A "Certificate of Origin" is also called a "Form A"

Insurance Certificate

´A document indicating the type and amount of insurance coverage in force on a particular shipment to cover loss of or damage to the cargo while in transit.

´In some cases a shipper may issue a document that certified that a shipment has been insured under a given open policy.

´Marine cargo insurance that provides blanket cover against loss or damage to all goods transported  by a specific shipper, during a stated period.

´Under its terms, the insured is required to periodically provide the insurer with the description, quantity, and value of goods shipped during that period.

Open policies can provide efficiency and savings for all parties concerned, especially when the insured conducts a significant volume of highly similar transactions

´Bill of Exchange

´The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange. Drawee is the person upon whom the bill of exchange is drawn.

´Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn. Payee is the person to whom the payment is to be made.

´There are three parties in the Bill of Exchange

´ (i) Drawer is the maker of the Bill of Exchange. The seller /Creditor who is entitled to receive money from the debtor can draw a bill of exchange has to sign it as maker of the bill of exchange.

´(ii) Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.

´(iii)Payee is the person to whom the payment is made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of his payment.

´The payee may change in the following situations.

´In case the drawer has got the bill discounted, the person who has discounted the bill will become the payee.

´In case the bill is endorsed in favour of a creditor of the drawer, the creditor will become the payee.

´when a bill of exchange is issued by a financial institution, it's often called a bank draft. When it's issued by an individual during a transaction, it's referred to as a trade draft.

´A bill of exchange is a non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.