Contracts

In foreign trade transactions a contract is drawn up to give legal expression to the intentions of the partners and to guarantee that the obligations contained in the contract will be fulfilled. By law contracts are made in writing. Standart contracts are not a must. Some articles may be altered and supplemented. According to the purpose and contents, contracts can cover: goods, services licences, patents, technology and know how. As a rule the contract contains a number of clauses, such as: Subject of the Contract, Price, Terms of Payment, Delivery, Guarantee, Insurance and other Conditions. Subject of the contract names the product for sale or purchase. The price stated in a contract may be firm, fixed or sliding. One of the essential clauses of the contract is the Guarantee Clause. If during the guarantee period the equipment supplied by the Seller proves to have some defects the Seller undertakes to correct these defects or to replace the defective equipment at his own expense. Every contract names Insurance of Goods. All sensible businessmen now insure goods for the full value in order to obtain indemnify in case of damage or loss.

Base point of contracts

As a rule the contract contains a number of clauses, such as: Subject of the Contract, Price, Terms of Payment, Delivery, Guarantee, Insurance and other Conditions. Subject of the contract names the product for sale or purchase. The price stated in a contract may be firm, fixed or sliding. One of the essential clauses of the contract is the Guarantee Clause. If during the guarantee period the equipment supplied by the Seller proves to have some defects the Seller undertakes to correct these defects or to replace the defective equipment at his own expense. Every contract names Insurance of Goods. All sensible businessmen now insure goods for the full value in order to obtain indemnify in case of damage or loss.

Terms of delivery

The most popular terms of delivery in foreign business transaction are: 1)fob (free on board); 2)cif (cost, insurance and freight); 3)c&f (cost and freight); 4)for (free on rail). If the goods are offered on fob terms the price will practically include the cost of the goods and transportation expenses to the port of shipment. If the goods are offered on cif terms the price will cover the coast of the goods, insurance expenses and freight or transportation expenses, to the port destination. If the goods are offered on c&f terms the price will cover the cost of the goods and freight to the port of destination. If the goods are offered on for terms the price will include the cost of the goods and transportation expenses to the railway station only. These terms are similar to fob terms. The only difference is the mode of transportation. In case of fob terms the goods are shipped on broad ships. In case of for terms the goods are transported by railway.

Terms of Payment

Payment in foreign trade may be made in cash and on credit. There are different methods of cash payment: 1)By cheque; 2)By telegraphic or telex transfers or post. 3)By a letter of credit. In commercial practice the following types of letters of credit are usually used irrevocable, confirmed and revolving. The letter of Credit is the most frequently used method of cash payment because it is profitable and secure both to the Buyer and to the Seller. 4)Payment for collection is not widely used because it doesn’t give the Seller any guarantee that he will receive payment in time or at all. Most modern business is done on a credit basis which may be: 1)By drafts. A draft is an order to pay. It is also called a bill of exchange. There are two main types of drafts: sight drafts and term drafts. 2)In advance. This method is used when the Buyers are unknown to the Sellers or in case of single transaction. 3)On an open account – Open accounts terms are usually granted by the Sellers to the regular buyers or customers. The two methods of payment (in cash or on credit) are very often combined in a contract.