Negotiating principles and precautions to be taken by the contracting parties
Agreements or contracts can only be regulated by the laws of a single jurisdiction as stipulated in the law of international contracts which specifies that a contract cannot be regulated in several jurisdictions because of potential legal conflicts rendering the contract inapplicable.
General information
The seller should be open and frank by providing proof of the existence and availability of the product throughout the period covered by the contract just as the buyer, too, should be forthright in providing proof of his financial capacity to finance the purchase (these operations are carried out concomitantly by the banks of the two contracting parties). A reluctance to disclose necessary or relevant information between the two banks should be considered as a strong signal of the existence of a potential danger from one or other of the partners.
The contact between the supplier and the potential buyer is normally marked by the provision by the latter of a document entitled “Letter Of Intent” (LOI) accompanied by another document issued by his bank called RWA or BCL to guarantee the availability of funds.
You cannot sell something you do not own. A real seller is the one who owns the product or has a power of attorney in his name; this allows him to sell the product as the owner or holder of the title. In most cases, this is done from bank to bank, it is considered the safest way to exchange documents. Buyers who cannot provide financial capacity or have no financial means to buy the product are in reality brokers who try to maximize their performance by overvaluing the product as resellers.
Many sellers will never provide proof of the existence of a product to a buyer who cannot or will not exhibit his or her financial ability first.
After receiving the LOI or ICPO (Irrevocable Corporate Purchase Order) which is a document almost identical to the LOI but which contains a little more details (see below) sent by the buyer, the seller will send him the link to the CIS (Customer Information Sheet) to be completed and returned with copy of his passport and the company registration document. If the result is positive, the seller will begin the formalities of the direct procedure with the buyer.
The most important document therefore for the seller is the letter RWA issued by the buyer’s bank. The buyer can download here the template which he will give to his bank which must fill it out and sign it.
| Here is an estimate of the time required to conclude a contract. This depends, of course, on the speed of the partners and their banks to complete the steps.
This table is given only as an estimate and is developed by some large trading companies, the result of their long experience of international trade The chronology, below, is always calculated according to the working days – in particular for the concerned banks. |
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| Steps | Maximum time | |
| 1 | After sending the buyer’s LOI or ICPO and RWA to his bank and having received his OK, the seller will forward the purchase and sale contract (SPA) within 24 hours to the buyer. | 24 hours |
| 2 | The buyer then has 72 hours maximum to sign the SPA and probably the Pro-Forma commercial invoice (P-F CI). | 72 hours |
| 3 | After receiving these documents in Word format with electronic signatures (not in PDF format!). The seller checks the contract again and sends it back within 24 hours sealed with its unique QR code this time in PDF format. | 24 hours |
| 4 | After the buyer has received the PDF, he has a maximum of 72 hours to issue the instrument from his bank and send the copy of the SWIFT MT799 or MT760 transmitted directly to the protected e-mail address of the seller. No other intermediary will receive this document. | 72 hours |
| 5 | The seller’s bank confirms SWIFT with the buyer’s bank by following SWIFT’s standard banking communication protocol. The waiting time can be up to 48 hours in working days for the confirmation process. | 48 hours |
| 6 | However, it is sometimes difficult to master this calendar. | 72 hours |
| 7 | In the event that the buyer’s bank has sent the document MT799 / Notices the two banks will cooperate on the MT760 between them within 72 hours. | 72 hours |
LOI (Letter of Intent) / ICPO (Irrevocable Purchase Order)
The Letter of Intent is not a contract. It serves to inform the seller of the buyer’s intention to enter into negotiations with him for the purchase of a particular product. It does not obligate the buyer or the seller to conclude the transaction. It is just considered as the starting point of a negotiation which should, theoretically, lead to the conclusion of a commercial transaction. Prior to the signing of the contract, both parties are free to waive negotiations at any time, and the buyer cannot be held responsible for the statements contained in the LOI.
Bank information is usually not sent by letter of intent unless the buyer and seller already know each other.
For its part, the ICPO is more detailed than a LOI and must always be sent directly to the seller or his representative. It must contain complete banking data to enter the contractual phase.
Both documents must be signed by the legal representative of the company issuing them. If they are issued without signature or in the form of an e-mail not appearing on the company’s letterhead, the seller may disregard it as he may come into contact with the buyer to ensure the authenticity of the document and the veracity of the information contained.
Shipping Documents
Shipping documentation
The goods shipped are accompanied by a number of documents. Some of these documents are necessary for the seller to be paid, others are necessary for the merchandise to be imported into a foreign country, others provide assurance that the products meet the requirements set out in the contract and that they are handled and shipped aboard an airworthy vessel.
Here is a list of the shipping documents most often provided, as well as explanations of their function.
Commercial invoice
It is established by the seller for the benefit of the buyer. It details the specifications of the product shipped and the total cost of shipping. This invoice is required for the seller to receive payment under the terms of a Letter of Credit, and functions as a tax invoice for the buyer.
Bill of Lading
It is issued by the carrier. It contains information on the ports of embarkation and destination. It also describes the conditions of transport. Bills of Lading may be negotiable or non-negotiable. A negotiable bill of lading allows his holder to change the port of destination. A non-negotiable bill of lading means that the shipment will be delivered to a specified port, and that port cannot be changed.
Packing list
It is simply a document that describes the quantity and type of product shipped. This document is normally very detailed. In order for the vendor to obtain a payment, it is important that the packing list be identical to the terms of the contract and those listed in the letter of credit.
Weight, Quality and Condition SGS Certificate
The SGS Certificate is an independent international inspection company that inspects the shipment before it leaves the port and verifies that the goods have weight, nature, quality and are in a correct and compliant state mentioned in the bill of lading, the packing list and the contract. If everything is in order, the company would issue a certificate from SGS indicating that the product met the standards at the time of shipment.
Certificate of supervision of loading / stowage
A loading / stowage supervision certificate is proposed by SGS and covers the following loading elements:
- Thorough verification of the overall appearance of the cargo and any packaging.
- Verification that the entire product is loaded according to the contract.
- Ensure proper handling procedures are followed during loading.
- Make sure that the means of transport is clean and hygienic.
- Make sure the shipment is properly stowed, secured and protected.
The Load / Stowage Certificate provides the purchaser with peace of mind that not only was the product in good condition when it left the factory or warehouse, but it was handled properly prior to shipment. It is also important for the seller to obtain this certificate as it constitutes further proof, in the event of an incident en route, that all precautions have been taken to ensure delivery to the buyer.
Certificate of origin
It indicates the origin of the product. This is essential when exporting products from one country to another. The certificate of origin is often issued by the exporter, although it can sometimes be issued by a government agency.
Phytosanitary certificate
A phytosanitary certificate indicates that the consignment meets the phytosanitary requirements in force in the country to which the commodity is exported. Phytosanitary certificates are still required for plants and plant products as they may represent a potential danger to the ecosystem of the country to which they are exported.
Certificate of radiation
A cancellation certificate indicates that the shipment is within internationally acceptable radiation limits.
Certificate of culture
A crop certificate indicates the crop from which the product was produced. This ensures the traceability of the product to its origin.
Declaration of the shipping company
A declaration of the shipping company refers to the vessel in which the product will travel. It normally indicates that the ship is of a certain age and is well maintained. This document is designed to provide assurance that the vessel is worthy to sail on the high seas.
Trust, seriousness, respect of commitments and deadlines, confidentiality, discretion.