International Business

Operations
Lecture 5/13
17.10.2019
Ing. Eva Křenková, Ph.D.
Office hours: every Monday 11:00 –
12:00 NB213
E-mail: eva.krenkova@vse.cz
 Contracts for the
International Sales of
Goods

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 CISG
• Part II. Formation of the contract
• Article 14
• (1) A proposal for concluding a contract
addressed to one or more specific persons
constitutes an offer if it is sufficiently definite
and indicates the intention of the offeror to be
bound in case of acceptance.
• A proposal is sufficiently definite if it indicates
the goods and expressly or implicitly fixes or
makes provision for determining the quantity
and the price.
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 CISG
Article 19
• (1) A reply to an offer which purports to be an acceptance but
contains additions, limitations or other modifications is a
rejection of the offer and constitutes a counter-offer.
• (2) However, a reply to an offer which purports to be an
acceptance but contains additional or different terms which do
not materially alter the terms of the offer constitutes an
acceptance, unless the offeror, without undue delay, objects
orally to the discrepancy or dispatches a notice to that effect.
• If he does not so object, the terms of the contract are the terms
of the offer with the modifications contained in the acceptance.
• (3) Additional or different terms relating, among other things, to
the price, payment, quality and quantity of the goods, place
and time of delivery, extent of one party’s liability to the other
or the settlement of disputes are considered to alter the terms
of the offer materially. 4
Delivery Terms

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• ! Nor INCOTERMS, nor CISG do NOT cover the
passage of property also called as transfer of
title to the goods
domestic law

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 INCOTERS do cover:
• TRANSPORT COSTS
• RISK OF LOSS OR DAMAGE TO THE GOODS IN
TRANSIT
• INSURANCE RESPONSIBILITIES
• EX IM CUSTOMS CLEARANCE AND PAYMENT
OF DUTIES
• INFORMATION ASSISTANCE DUTIES

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• ! Delivery under the terms of delivery (Incoterms)
does not necessarily equate with transfer of title to
the goods
• E.g. Retention of title clause

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 Retention of title
• A retention of title clause is a provision in a
contract for the sale of goods that the title to
the goods remains vested in the seller until
certain obligations (usually payment of the
purchase price) are fulfilled by the buyer.

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 INCOTERMS 2010
RULES FOR ANY MODE OR MODES OF TRANSPORT
• EXW EX WORKS
• FCA FREE CARRIER
• CPT CARRIAGE PAID TO
• CIP CARRIAGE AND INSURANCE PAID TO
• DAT DELIVERED AT TERMINAL
• DAP DELIVERED AT PLACE
• DDP DELIVERED DUTY PAID

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

• FAS FREE ALONGSIDE SHIP
• FOB FREE ON BOARD
• CFR COST AND FREIGHT
• CIF COST INSURANCE AND FREIGHT
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Source: ICC website
Terms of payment

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 Price in International Sales Contracts
• Among key provisions in int. sales contracts
• Price amount can be given in both – words
and figures
• Clearly indicate the currency
• Not in the contract provide a method for
determining the price
• Fluctuation clause – alows to increase or
decrease the price according to changing
market conditions 12
 Terms of payment
• Costs
– Direct/indirect costs
– Trade finance costs, bank fees, interests (interest rate),
insurance, documents issue
• Cash flow
• Risks
– Trade partner risk (commercial risks, non-payment
risks), territorial risks (unforseen events), exchange
rate risk
• Trade finance
– Export/import credit
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 Payment options
• Payment in advance
• Open account
• Payment backed by standby credit or bank
guarantee
• Documentary credit, letter of credit, L/C
• Documentary collection
• Bank Payment Obligation

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Documents required for trade payments
the bill of exchange (draft), promissory note
the bill of lading
the commercial invoice
insurance documents
official certificates and licences
(certificate of origine, inspection certificates and other)

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Bill of exchange

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Promisory note

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 Payment options
• Payment in advance
– Safest for exporter
– A partial advance payment may be more acceptable
for the importer
– Great risk for importer
• Open account
– The exporter deliveres the goods and waits for the
agreed upon credit period for payment (net 30, net
60, net 90 – the balance is payable in 30,60, or 90
days)
– The exporter may consider a protection with credit
insurance

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 BIC - business identifier code
– SWIFT Code
• 8- digits code according to ISO 9362 Standard :
– prefix (4 alphanumeric)
– Country code (2 alphabetic, specified in ISO 3166-1)
– the business party suffix (2 alphanumeric)
– Example: SOLADEST
COBADEFF
AIBKGB2L
TBNFFR43PAR

https://www2.swift.com 21
• Ukázka potvrzení o platbě - EU

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 Documentary credit – L/C
• „The importer provides the exporter with an
advance guarantee of payment that is
conditional upon the exporter presenting a set
of documents proving that exporter has
shipped conforming goods.“

Source: ICC : ICC Guide to Export/Import, Jimenez, G.C.

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 Documentary collection
• „The exporter ships the goods to the
importer´s country, but the shipping
documents tranfering control over the goods
are not released to the importer until the
importer pays or accepts to pay.“

Source: ICC : ICC Guide to Export/Import, Jimenez, G.C.

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• Documentary credit, letter of credit, L/C
– After cash in advance this is usually considered the
next safest method fot the exporter
– Can be relatively expensive in terms od banking fees
– The exporter must have a rigorous document-
preparation system in place to avoid the risk of non-
payment due to unconforming documents being
presented to the bank
• Documentary collection
– Not as safe as L/C for the exporter but cheaper
– The exporter has to take the risk that the importer will
not pay or will not accept the documents

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• Payment backed by standby credit or bank guarentee
– The exporter grants open account terms backed by a
standby credit or bank guarantee
– If the importer fails to pay on the invoice date, the
exporter draws against the standby credit or quarantee
– Advantage to the exporter – documentation is not as
complicated as by an ordinary commercial L/C
– Advantage for importer is receiving open accounts terms
– If the payment is made within agreed upon dates, use of
the standby credit or bank guarantee will never be
triggered
– The danger for importer is that the exporter could unfairly
claim the standby credit or guarantee – recomended to be
used on with highly trusted exporters
– Types of guarantees: if the instructing party is
supplier/buyer

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Types of guarantees – examples given by
Bank Austria:
If the instructing party is supplier:
• Bid bond (tender guarantee).
– Mostly to be issued within the framework of (public) invitations to
tender. It covers the successful tenderer’s obligation to sign the contract
and to have further guarantees issued which may be required (e.g. Down
payment guarantee, performance guarantee, ...).
– Guarantee amount: 1–5% of the tendered value.
• Warranty guarantee.
– Safeguards the supplier’s contractual warranty obligations.
– Guarantee amount: 5–10% of the contract value.
• Down/advance payment guarantee.
– This guarantee serves to secure the repayment of the effected
down/advance payment in case the contractual delivery/performance
obligations are not met.
– Guarantee amount: the same as the down/advance payment.
Source – Bank Austria
• Retention money guarantee.
– By means of this guarantee the buyer is assured of the
repayment of a part of the contract price transferred by him
ahead of schedule in case damages occur during
delivery/performance within the (warranty) period agreed
upon.
– Guarantee amount: 3–10% of the contract value.
• Delivery guarantee.
– Secures the fulfilment of the contractually agreed delivery/
performance obligations by the seller.
– Guarantee amount: starting from 10% of the contractvalue.
• Performance guarantee.
– This guarantee ensures that all the supplier’s agreedupon
contractual obligations are covered.
– Guarantee amount: 5–10% of the contract value.

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Source – Bank Austria
 Types of guarantees:
If the instructing party is buyer:
• Payment guarantee
– By issuing this guarantee the bank secures the
seller’s right to receive the contractually stipulated
payment from the buyer for his goods/services.
– Guarantee amount: order value.

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Source – Bank Austria
• Source:
ICC Global Survey on
Trade Finance

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BPO- Bank Payment Obligation
OPTIONAL

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Establishing a baseline

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Matching of trade data

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• Source:

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