Purchase Contract –
Procedure & Comments
Procedure - 1
Seller and Buyer conclude a
sales contract, with method
of payment usually by letter of
credit (documentary credit).
Essential Clauses of the Contract
Description of GOODS
Specification + Quality & Quantity
Terms of payment
Terms of delivery
by types/specifications numbers
catalogues, leaf-lets, web-sites, and other
official corporative sources
by personal testing – auctions
by detailed descriptions plans, manuals,
drawings, agendas, etc.
by useful outputs
ETC (agreed by the both Parties)
Methods of Payment in
International Trade - Risk Spectrum
EXPORTER RISK Open Account IMPORTER RISK
HIGH Documents Against LOW
Time Letters of Credit
LOW Sight Letters of Credit HIGH
Payment in Advance
Procedure - 2
Buyer applies to his issuing
bank, usually in Buyer's
country, for letter of credit in
favor of Seller (beneficiary).
Procedure - 3
1. Issuing bank requests
another bank, usually a
correspondent bank in
Seller's country, to advise,
and usually to confirm, the
Procedure - 4
Advising bank, usually in
Seller's country, forwards
letter of credit to Seller
informing about the terms and
conditions of credit.
Procedure - 5
If credit terms and conditions
conform to sales contract,
Seller prepares goods and
arranges delivery of goods to
Procedure - 6
Seller presents documents
evidencing the shipment and draft
(bill of exchange) to paying,
accepting or negotiating bank
named in the credit (the advising
bank usually), or any bank willing
to negotiate under the terms of
Procedure - 7
Bank examines the
documents and draft for
compliance with credit terms.
If complied with, bank will pay,
accept or negotiate.-
Procedure - 8
Bank, if other than the
issuing bank, sends the
documents and draft to
the issuing bank.
Procedure - 9
Bank examines the
documents and draft for
compliance with credit terms.
If complied with, Seller's draft
Procedure - 10
Documents release to
Buyer after payment, or
on other terms agreed
between the bank and
Procedure - 11
Buyer surrenders bill of
lading to carrier (in
case of ocean freight) in
exchange for the
goods or the delivery
A document from the consignee, shipper, or
owner of freight ordering the release of
freight to another party.
Bank Delivery Order to an Airline -- A letter
addressed to an air carrier from a bank who is
shown as consignee on an airwaybill
instructing the carrier to release a shipment.
Often airlines will accept as a delivery order a
bank's endorsement on the airwaybill,
although an airwaybill is a non-negotiable
Delivered Ex Ship (named port of destination)
" DES" means that the seller
the goods are placed at the
disposal of the buyer on board
of the ship
not cleared for import
at the named port of destination.
Delivered Ex Ship - 2
The seller has to bear all the costs and
risks involved in bringing the goods to the
named port of destination before
If the parties wish the seller to bear the
costs and risks of discharging the
goods, then the DEQ term should be
EXPORTATION CUSTOMS CLEARENCE
IMPORTATION CUSTOMS CLEARENCE
SELLER’S RESPONSIBILITY BUYER’S RESPONSIBILITY
POINT OF DESTINATION
GOODS HANDLING GOODS HANDLING
SELLER’S RISK BUYER’S RISK
SELLER’S COST BUYER’S COST
PORT OF DESTINATION
The following points should be kept in mind when
choosing an Incoterm.
What method of transport is to be
What are the terms currently used?
Are there any company policies on
which terms should be used and
how much responsibility should be
Are there any restrictions on the term to
be used imposed by the country of
Are there any commercial norms in the
country with which you are dealing?
Discuss the terms to be used with your
trading partner - it is important to take
their point of view into account.
Ensure that both parties understand
and can carry out their obligations.
Ensure that you are able to obtain
enough information to give a quote for a
Read Incoterms 2000. The introduction
gives good advice and can clarify certain
issues and the individual terms
themselves are accurately described.
Ensure all staff (especially those involved in
sales and marketing) are properly trained in
order to understand the basic principles of
Incoterms and in particular the details of the
Incorporate the terms decided into all
relevant commercial paperwork such as
invoices, quotations, terms and conditions of
Review the terms periodically and change
them if necessary.
distributions of documents,
distrubution of operation costs
and distributions of operation risks.
INCOTERMS DOES NOT REGULATE:
legislation applicable to points not reflected in
payment method of the operation.
Provide the goods, Accepting GOODS
commercial invoice or delivered
required by the sales
Pay for the goods as
provided in the sales
Licenses and Customs
Obtain at own risk and Obtain and pay costs
cost any export of all import licenses
licenses and and authorizations
authorizations and and carry out all
carry out all export import formalities.
those associated with
transshipment to the
named port of
Carriage and Insurance
Contract for and pay No obligation to the
all costs of carriage seller for either
and transshipment carriage or
(if necessary) to the insurance.
named place and port
No obligation to
Make the goods Take delivery of the
available to the goods once they are
buyer uncleared for made available at
import on board the the port.
vessel at the named
place and port on the
date or within the
time period specified
in the sales contract.
Assume all risks of Assume all risk of
loss or damage to the loss or damage from
goods until they the time the goods
have been made have been made
available to the available at the port.
buyer at the named
place and port.
Pay all costs until Pay all costs for the
the goods have goods once they have
been delivered, been made available
including all export at the port including
formalities, carriage unloading.
and transshipment Pay all costs
(if necessary) to the relating to import
named place and formalities including
port. duties, taxes and
Provide sufficient If, according to the
notice of dispatch sales contract, the
and projected arrival buyer is able to
that the buyer can specify a time for
take appropriate and/or a place of
action to arrange delivery, to give the
pick-up of the goods. seller sufficient notice.
Proof of Delivery, Transport
Provide the buyer Accept the seller's
with the delivery transport document
order and/or a so long as it is in
transport conformity with the
document enabling sales contract.
the buyer to take
delivery of the goods
at the port of
Proof of delivery is a method to establish
the fact that the recipient received the
contents sent by the sendor.
Checking, Packing, Marking
SELLER ___Pay all costs associated with
checking the quality and quantity of the goods
to be in conformity with the sales contract.
Provide appropriate packing (unless the
goods are traditionally delivered unpackaged)
as required for the transport of the goods, to
the extent that the buyer has made transport
circumstances known to the seller prior to the
execution of the sales contract.
Provide marking appropriate to the packaging.
BUYER ___ Pay for the costs of pre-
shipment inspection(s) except inspections
required by the country of export.
Provide the buyer at the Pay all costs associated
buyer's request, risk with securing
and expense any and documentation from the
all assistance in securing country of origin or
documentation export required for
originating in the country import.
of export or of origin Reimburse seller for
required for import. costs in providing such
Provide the buyer with documentation or
information necessary assistance.
to obtain insurance.
Maritime and Inland Waterway Transport Only
Group F FAS Free Alongside Ship (named
port of shipment)
< Free on Board (named port of
Group C CFR Cost and Freight (named port
Any Mode of Transport
Group E EXW Ex Works (named place
Group F FCA Free Carrier (named place)
Group C CPT Carriage Paid To (named
place of destination)
CIP Carriage and Insurance Paid
To (named place of
Group D DAF Delivered at Frontier (named
DDU Delivered Duty Unpaid
(named place of destination)
DDP Delivered Duty Paid (named
place of destination)
STRUCTURE of CONTRACT
ABC, hereinafter referred to as the
«Buyer», represented by abc, on the one
part, and XYZ, hereinafter referred to as the
«Seller», represented by xyz, on the other part,
have concluded the Contract on the following:
1. SUBJECT OF THE CONTRACT
The Seller has sold and the Buyer has bought
on the basis of CIP as per INCOTERMS 2000
the Equipment indicated in the Attachment No l.
The scope of work to be performed by the
Seller consists of supply of the equipment
and fulfillment of the service, specified in
Attachment No l.
2. CONTRACT PRICE
The total value of the contract amounts to
XXX,XXX.YY USD (write out figures by
the equipment price YYY,YYY.yy USD
the service price ZZ,ZZZ.zz USD
and is understood CIP (POD), the cost of packing
and marking included.
The total contract value and prices for each
contract item of the equipment and the service
are specified in Attachment No 1.
3. TERMS OF PAYMENT
3.1. All payments under this contract are made in
US Dollars by T/T remittance.
3.2 Advance payment in the amount of one
hundred percent (100%) of the total value of the
contract USD XXX ( in writing ) shall be paid by
the Buyer to the Seller against the Seller's
invoice within YY (in writing ) days from the
date when the Seller make out an invoice to
4. TERMS OF DELIVERY
4.2. The delivery date of the equipment shall be
considered the date of air waybill and/or
multimodal transportation, to be issued by the
first Seller's forwarder or carrier.
The arrival date of the equipment is the date of
arrival of the equipment at the customs
warehouse in POD
4.3. The Consignee under the contract is
4.4. The name of Sellers forwarder or carrier and
transportation route are to be confirmed by the
Seller to the Buyer by fax message not later
than XX days before the shipment date.
4.5. Prior delivery of the equipment is allowed
after the Buyer's consent only.
4.6. Shipping documents of each shipment (lot)
of the equipment shall include:
4.7. The Seller shall send by fax to the Buyer a shipping
advice on shipment with attached invoice and packing list not
later than XX before the shipment date.
The following data shall be specified in the shipping advice:
description of the
Number of packages;
port of loading;
port of destination;
Summary: Doing Business in
“Experience is the name every one
gives to their mistakes…”