Negotiating a strong international sales agreement from the exporter’s perspective

When engaging in international trade, an exporter’s primary concerns revolve around minimizing risks and ensuring payment security. The international sales agreement is the key tool for addressing these concerns. Below are the crucial aspects an exporter should focus on during negotiations.

Payment Terms: Ensuring prompt and secure payments

Primary Objective: Secure payment methods to reduce exposure to buyer default.

Exporters must prioritize payment security to avoid the risk of non-payment. Common secure payment methods include letters of credit (LCs), documentary collections, and advance payments:

• Letters of Credit (LCs): A reliable form of payment where a bank guarantees the buyer’s payment if the required documents are presented. Exporters should insist on irrevocable and confirmed LCs for added security.
• Documentary Collections: Payment is made upon presentation of shipping documents, keeping the exporter in control of the goods until certain terms are met.
• Advance Payments: Partial or full upfront payment reduces the risk of buyer default, ensuring liquidity for the exporter.

Tip: If extended credit terms are offered, the exporter should assess the buyer’s financial stability and consider export credit insurance to mitigate risk.

Incoterms: Defining delivery and risk allocation

Primary Objective: Minimize risks related to transportation and customs.

Incoterms define who bears the costs and risks of transport. From an exporter’s viewpoint, terms like Ex Works (EXW) and Free Carrier (FCA) are preferable as they limit responsibility for the goods once they are delivered to a specific point, passing on the risk to the buyer for transportation.

However, if the importer demands terms like Cost, Insurance, and Freight (CIF) or Delivered Duty Paid (DDP), the exporter should factor in the additional risks and costs, such as insurance and customs duties, and adjust pricing accordingly.

Tip: Select Incoterms that protect the exporter from unexpected shipping costs and liability, or adjust the contract price to compensate for taking on more risks.

Dispute resolution: favorable jurisdictions

Primary Objective: Choose jurisdictions or arbitration venues that are advantageous to the exporter.

Exporters should aim for dispute resolution clauses that favor their home country’s jurisdiction or a neutral international arbitration institution like the International Chamber of Commerce (ICC) or London Court of International Arbitration (LCIA). These provide predictability and enforceability, minimizing the risk of an unfavorable legal process in a foreign court.

Tip: Include clear and detailed dispute resolution procedures, including the choice of law and forum, to avoid unpredictable and costly litigation in foreign jurisdictions.

Compliance with export controls and documentation

Primary Objective: Ensure compliance with all export regulations and provide accurate documentation.

Exporters must be aware of and comply with export control regulations, including any sanctions or licensing requirements that could affect the transaction. Additionally, proper documentation, such as invoices, certificates of origin, and packing lists, should be provided to facilitate customs clearance on the importer’s end.

Contact us to stay updated on export control regulations and ensure that all required documentation is complete to avoid penalties or delays.