The Handbook of International Trade and Finance

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An international trade transaction, no matter how straightforward it may seem at the start, is not completed until delivery has taken place, any other obligations have been fulfilled and the seller has received payment. This may seem obvious; however, even seemingly simple transactions can, and sometimes do, go wrong.

There are many reasons why these things happen, but behind them all is the basic fact that the risk assessment of the transaction and/or the way these risks were covered went wrong.

An example is the risk assessment of the customer, where exporters do not always fully realize that some larger countries are divided into regions or states, often with different cultures, which may affect trade patterns and practices.

In some countries, what the seller thought was a signed contract may just be seen as a letter of intent by the buyer until it also has been countersigned by a more senior and internally authorized manager. Or it may be that the seller has agreed to terms that were previously used but are not suitable in a changed environment or due to changes in their own business.

Another reason may be that the parties simply did not use the same terminology or did not focus on the details of the agreed terms of payment. This would inevitably lead to undefined terms, potentially subject to future disputes, something that may not be revealed until delivery has been made – when the seller is in a weaker bargaining position. Even though such errors may not result in non-payment, it is more likely that they will lead to delays in payment, with an increased commercial and/or political risk as a consequence.

Another common consequence of unclear or undefined terms of payment is that the seller may have outstanding claims on the buyer; or that the buyer is of the same opinion with regard to the seller and takes the opportunity to make unilateral payment deductions owing to real or alleged faults or deficiencies in the delivery.

Each area of international trade requires its own knowledge, from the first contact between buyer and seller to final payment. One such area of expertise is how to develop professional and undisputed terms of payment and how to solve currency and trade finance questions in a competitive way. These areas are of vital importance both in the offer and in subsequent contract discussions, not just within difficult countries or markets or in larger, more complicated deals, but also in quite ordinary day-to-day transactions.

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