Commercial_Correspondence

...17 Arial

Michael Tanner

Shipment of your order No.8815

Dear Mr Tanner

The above order has been shipped clean aboard the Northern Cross, due in Wellington 12 June.

The shipping documents have been passed to the Eastland Bank, London, and will be forwarded to the New Zealand Bank, Wellington, who will advise you.

As agreed we have drawn on the Eastland Bank at sixty days after sight for the net amount of

£23,100.00 (twenty three thousand, one hundred pounds sterling) which includes the bank's discount, commission, and charges.

Neil Smith

Senior Shipping Clerk

Delta Computers Ltd

Wellingborough, NN8 4HB, UK

Tel.: +44 (0)1933 16431/2/3/4

Fax: +44 (0)1933 20016

Email: smithn@delta.com

From the exporters to the importers

Delta Computers notify

N.Z. Business Machines

that the consignment is

on its wayto them.

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Michael Tanner

Subiect: I Delta Computers

Dear Mr Tanner

In accordance with your instructions of 3 May, our agents, Eastland Bank, London, accepted a draft for £23,100 drawn by Delta Computers Ltd on presentation of shipping documents for a consignment sent to you on 24 May.

We have debited your account with the amount plus our charges of $NZ 350. The documents are now with us and will be handed to you when you call.

Ian Close

New Zealand Bank

Our order 90103

Order No. 90103

Dear Mr Lee

We met your representative, Mr Tom Chai, at the Earls Court Boat Show in London last week, and he showed us a number of your dinghies, and informed us of your terms and conditions.

We were impressed by the boats, and have decided to place a trial order for ten of your craft,

Catalogue No. NR 17. The attached order, No. 90103, is for delivery as soon as possible.

As Mr Chai assured us that you could meet any order from stock, we have instructed our bank, Northern City Ltd, to open a confirmed irrevocable letter of credit for £10,300 in your favour, and valid until 1 June 20—.

Our bank informs us that the credit will be confirmed by their agents, Cooper & Deal Merchant Bank, Pekin Road, Hong Kong, once you have contacted them. They will also supply us with a certificate of quality when you have informed them that the order has been made up and they have inspected it.

You may draw on the agents for the full amount of the invoice at 60 days, and your draft should be presented with the following documents:

Six copies of the bill of lading

Five copies of the commercial invoice, CIF London

Insurance certificate for £10,540 (A.R.)

Certificate of origin

Certificate of quality

The credit will cover the invoice, discounting, and any other bank charges. Please cable us confirming that the order has been accepted and the dinghies can be delivered within the next six weeks.

Regards

Andy Valour

International Boats Ltd

Email: valoura@intboat.co.uk

A documentary credit trarrosactdon 2

From the importers to the eNporters

This email,from the importers, International Boats, in London to the exporters, Lee Boatbuilders, in Hong Kong, is the first step in our second example of a documentary credit transaction. Note that International Boats ask for a certificate of origin, which they need since they intend to re-export the dinghies to France, which is an E u country. Note also that they will use their bank's agents– the confirming bank–to verifythe quality of the boats.

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are International Boats' bankers, have now notified their agents in Hong Kong, Cooper & Deal, who have in turn advised Lee Boatbuilders that the credit is available. Meanwhile Lee Boatbuilders have emailed International Boats confirming that they have accepted the order and can deliver within six weeks.They follow this by sending a fax, advising shipment.

1 When is the

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arrive in London?

01 2 How have the dinghies been packed?

3 What does 6o D/s

166 mean?

TYPES OF AGENCY

AGENTS and AGENCIES usually represent

companies.There are many kinds of representation, but in this unit we deal mainly with buying and selling agencies. However, it is useful to look as well at other areas where companies act on behalf of their clients, as these will be referred to later.

ISVokers

BROKERS usually buy or sell goods for their PRINCIPALS (the companies they represent) but rarely handle the consignments themselves. There are various types of broker:

—Brokers /DEALERS On a STOCK EXCHANGE

buy and sell shares for their clients. The clients ask the broker to buy or sell shares for them, and the broker takes a commission on the purchase or sale.

—Shipbrokers arrange for ships to transport goods for their clients. They operate from their offices, or on the Baltic Exchange or one of its branches.

on this topic.

—Insurance brokers arrange insurance c OVER

With UNDERWRITERS,WhO pay

compensation in the event of a loss.

i'See pages 222-239 for more on this topic.

—Commodity brokers buy and sell bulk commodities, e.g. cocoa, tea, coffee, and

rubber on the COMMODITY MARKETS On

behalf of their clients. Metal brokers do the same on the Metal Exchange.

There are other exchanges where companies use brokers to represent them, either because the company does not have membership of that exchange, or they want to use the broker's specialized knowledge of the market.

Buyers, sellers, and brokers communicate by means of telephone, email, cable, or fax as prices in the markets tend to fluctuate quickly

— even by the minute in the case of bullion and foreign currency.

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Agents and agencies

170

Distributors

DISTRIBUTORS buy goods from an exporter then sell them on their own account for a profit. The advantage of this is that the exporter has only one customer in that market to worry about. However, the exporter has to be careful in selecting distributors in order to ensure the best sales.

A distributor is expected to keep the exporter informed about the market and not to sell products which compete with the exporter's. Distributors are also expected to have a network in the area, provide training for technical staff, and supply after-sales service when and where necessary. An exporter might make enquiries about a distributor before signing a contract.

The exporter will refer all enquiries to the distributor, supply conditions of sale to distributors and their customers, offer promotional material, and provide INDEMNITIES (insurance) for guarantees on the goods the distributor sells.

Commercial agents

Another name for a COMMERCIAL AGENT is a COMMISSION AGENT. A commercial agent never takes title to the goods, i.e. never owns them like a distributor, but is the intermediary or 'middleman' between the exporter and the customers.

Commercial agents represent a manufacturer, obtaining goods and then reselling them. They may buy the goods from the manufacturer on consignment: this means that they do not own the goods but sell them on for a commission. Commercial agents can be SOLE CUEXCLUSIVE AGENTS, i.e. the only agent allowed to sell a particular manufacturer's products in a specified country or area.

eying agents

BUYING AGENTS, OT BUYING HOUSE s, buy

goods on behalf of a principal and receive a commission. They are employed to get the best

possible terms for their principals, and will try to find the most competitive rates in shipping and insurance for them. Buying houses often act on behalf of large stores.

The orders sent to buying agents are called INDENTS and are of two types: OPEN INDENTS, where the agents choose their supplier, and CLOSED Or SPECIFIC INDENTS, where the supplier is named by the principal.

FINDING AN AGENT

It is possible to find an agent through the Internet, or by advertising in TRADE

JOURNALS. Other methods include contacting government DEPARTMENTS OF TRADE in your own country or the country you wish to export to, or consulting CHAMBERS OF COMMERCE, CONSULATES, TRADE ASSOCIATIONS, Or banks. The guide below provides some suggestions for ways of dealing with this kind of correspondence.

Opening

Tell the organization who you are.

—We are a large manufacturing company

specializing in ...

—We are one of the leading producers of...

—You probably associate our name with the

manufacture of chemicals / textiles / business

machines /furniture ...

Explaining what you want

—We are looking for an agent who can represent us in ...

—We would like to appoint a sole agent in

Taiwan to act on our behalf selling ...

—Our aim is to identify an established company

who can represent us...

Closing

Close by saying that you would be grateful for any help.

—We would be grateful if you could supply us with a list of possible agents.

—We hope you can help us, and look forward to hearing from you.

—Thank you in advance foryour help. We look

forward to receiving your recommendations.

OFFERING AN AGENCY

Once you have obtained the names and addresses of prospective agents, you can write to them direct. Below is a guide for manufacturers offering terms to a prospective agent.

Opening

Tell the agent how you obtained their name.

—You were recommended to us by the Saudi

Trade Commission in London.

—Mr Eric Stoleman of the Swiss Export

Department has told us that...

Explain who you are.

—We are an established company manufacturing ...

—We are the leading exporters of...

—We are one of the main producers of chemicals /textiles / business machines /

furniture...

Convincing the prospective agerot

Convince the agent that the products you make are worth handling and will sell in their market.

—You will see from our catalogue that we offer a wide range of well-designed products which are hardwearing, light, easy to use, and fully guaranteed forone year.

—Our prices are extremely competitive for a product of this quality. Our research shows us that there is a growing demand for this product in your country, and we are sure that once our brand is established it will become a market-leader.

—The Zenith z000 is the result of many years' research and development, and we are confident that it will quickly overtake sales of the competing brands at present available in the Swedish market.

Sole or exclusive agency

—We will not restrict the agent by offering a sole agency as we have found that this limits our own sales and, in addition, is sometimes awkward for the agent.

—We are offering an exclusive agency,

ensuring thatyou will not have competition from other agents operating in the area specified in the contract.

— We cannot offer an exclusive agency for Austria at present. However, if the agency is successful, we may reconsider the situation in the future.

It should be established whether you are going to deal with your agent on a CONSIGNMENT BAS I s, when the agent will not own the products you send but will sell them for a commission, or whether you want to supply the agent as a distributor to re-sell to customers on their own account, in which case the agent will decide on resale prices and take the profits from the sales.

— Generally, we do not deal on a consignment basis, but prefer our agents to buy our products on their own account. They usually prefer this method as it proves more profitable for them and allows them greater freedom in determining prices.

Note that the use of the word generally in the above example leaves the offer open to

negotiation.

Area to be covered

Make it clear what area the agency is for. —You will have sole distribution rights for the

whole of France, which will give you an excellent opportunity to establish a highly profitable market.

— Initially, we will give you a sole agency for the Lazio region, but if sales are successful, we will extend that to other regions.

—As exclusive agents you will have no competition in Northern Germany, therefore with effective selling you should be guaranteed a substantial return.

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Agents and agencies

172

Commission

Some firms offer terms straight away in an initial enquiry, while others wait until they have had a reply from the prospective agent. When offering terms, you should make them sound as inviting as possible.

— The agency we are offering will be on a commission basis, and as we are very interested in getting into the French market, we are prepared to offer 15%, plus a substantial advertising allowance.

—As this will be a sole agency, we are prepared to offer a generous commission as compensation, and a reasonable allowance for expenses.

— As an inducement to the agent we appoint, we will be offering a 12% commission on net prices.

Settlement of accounts

—Orders should be sent to us direct for shipment, and we will arrange for customers to pay us. You may issue us with quarterly/ monthly statements of account, which will be paid by sight draft at the bank of your choice.

— Customers should pay us direct on each sale by letter of credit, and we will remit your commission by bill on submission of your monthly/quarterly account. Credit is not to be offered without our express consent.

Support from the principal

Prospective agents will want to know what support you will give them in their efforts to sell your products.

— Our products carry a one-year guarantee and we will replace any faulty item carriage paid.

—As you know, our company offers a full aftersales service, which is essential in establishing the reputation of our brands, and your customers need have no worries about spare parts or maintenance.

— We can offer you additional expenses of

£15,000 per annum for advertising. This will be reviewed after a year and increased if we think sales warrant it.

Delivery

Exporters should always allow some time for unforeseen problems caused by delays, public holidays, etc. It is always best to quote a realistic delivery time.

—Providing there are no unforeseen delays, we will be able to deliver within six weeks from receipt of order.

—We would like you to maintain adequate stocks of our three main ranges, bearing in mind that we will be able to deliver between two and fourweeks of receiving orders.

—Delivery should not take longer than three weeks if we have the items in stock.

Duration of the contract

The length of time for the contract is usually discussed after the agency has been agreed.

—The contract will be from I March for one year, and provided both parties agree, will be renewed fora further year in 20-.

—We feel that nine months should be enough time to decide whether this arrangement is likely to be successful, and will draw up the

first contract accordingly

— Subject to our mutual agreement, the contract will be renewed annually.

Disagreements and disputes

Provision is usually made for disagreements and disputes. This, too, would not appear in an initial letter, but in correspondence confirming the agency, and, of course, in the contract.

—In the case of disagreement over conditions or payments, the matter will be settled by arbitration.

—We agree that disputes over contracts should be decided according to American law

Note: ARBITRATION is when a neutral organization settles problems between the principal and agent. A chamber of commerce or trade association often acts as arbitrator.