Regardless of the size of the order, legally speaking, a purchase contract should be signed to clarify the criteria for negotiation between the two parties and to ensure smooth trade. In international trade, there are a large number of uncontrollable factors in production and shipping because of the large geographical span of buyers and sellers. The signing of a sales contract helps to clarify the responsibilities and obligations of both parties in a more reasonable and legally secure manner when differences arise.
The five most important points to focus on in a procurement contract are the buyer's and seller's letterheads, the description of the product, the price terms, the delivery date and the inspection method. How to clarify these five aspects of information is the focus of our next lecture.
Buyer and seller's letterhead
Clarifying the buyer and seller in a sales contract is a prerequisite for the contract to have legal effect. If the subject of the contract is wrong, then this contract will not be binding on the buyer and seller even if the terms are clear and detailed. The more detailed the information on the letterhead, the better, and each letter should be checked carefully. For example, if you are purchasing a batch of extension sockets from China, the corresponding letterhead can be provided by email to the supplier, or you can ask the supplier for a copy of the company's Registration Form for Foreign Trade Operators to ensure that the letterhead on the contract is genuine and valid.
Product description (product dimensions, materials, packaging and other details)
The description of the product includes the size, material and packaging details of the product. All these information can be confirmed when placing an order and written clearly on the contract, which can avoid disputes arising from inconsistencies in the standards of the goods between the two sides after the bulk production is completed later. For example, in terms of product dimensions, in addition to the basic outer dimensions, notes can be made on the dimensions of key parts, such as hole diameter and material thickness. In the case of materials, for example, where the raw materials of individual suppliers' products are replaced by inferior materials, it is important to specify the materials used for the components on the contract. As for packaging details, different packaging methods and packaging materials can vary in cost, and it is necessary to specify this in advance in the contract to ensure that the order is carried out smoothly at a later stage. For example, if the same colour box is packaged, does it need to be a window box or a fully enclosed box, and if it is a window box, does the window part need to be laminated? For the same hanging card, is it simply a hanging card, or do you need more than one? Some of the packaging for gift items will involve more additional packaging costs, such as the need for foil stamping and silver stamping on the packaging, the need for offset printing effects, the need to cover the surface of the colour box with matte film. Regarding to these cost changes, some suppliers will take into account the long-term relationship between the two sides, to absorb this part of the cost. Some suppliers will raise the price at a later stage, adding additional time costs because of their own profit points are relatively low.
Many people will say, that my product involves so many sizes. If I write everything, the content is too long, then the two sides can determine a standard sample, that is, a signed sample. After writing the basic size, material and packaging information on the contract, you can add a clause saying "Please refer to the confirmation sample for details". Confirmation samples are generally provided by the supplier to the purchaser, and the purchaser signs on the product to confirm the quality after approving it. Later on, when the quality of the large goods is confirmed, the sample is referred to.
The price terms, payment terms.
Price terms, refers to the price agreed by both parties. Common FOB, CNF, CIF, etc,. are under international trade price terms. On the price terms, here is no specific expansion. You can turn to previous issues of the article related to explain. The significance of clarifying the price terms of the contract is to determine the attribution of costs to the buyer and seller in terms of sea freight, insurance, inland freight and so on. For example, if the price negotiated with a supplier is FOB Ningbo, the supplier should bear all the costs before the goods are put on board, and it is up to the supplier to resolve any increase or decrease in inland freight costs or freight forwarding costs in the supplier's area.
The payment terms are the "XX% deposit, final payment to be paid XX days after receipt of BL COPY" as stated in the purchase contract. This is also very understandable and makes it clear how the payment is to be made. For example, if you need to arrange a deposit, the supplier should arrange production after receiving the deposit. For the buyer, most of the goods need to be picked up with the original bill of lading when the goods arrive at the destination port, so it is very important to pay the final payment before the ship arrives at the port and receive the original bill of lading, otherwise the goods will not be cleared after arriving at the port and incur demurrage charges.
Delivery period and penalty treaty.
With seasonal products, it is important to make a constraint on the delivery date because the delivery date will directly affect the sales plan. In general, the purchaser will take into account factors such as the ship date and leave a margin of 7 days for the purchaser. For shipments that are 1-7 days behind the delivery date, no penalty is required, and for each subsequent week that the delivery date is delayed, a corresponding penalty amount is given. For important sales seasons, such as Christmas and Thanksgiving, where missing the season would make it impossible to sell, consider adding an airfreight penalty treaty, agreeing that the supplier will be required to ship part of the goods by air after a delay of XX days in the delivery date.
The purpose of the delivery date and penalty treaty is not to impose a penalty, but to make the delivery date manageable so that the buyer's sales plan will run smoothly and without disruption.
Manner of inspection of goods.
The inspection of the quality of the goods after the goods have been finished. If you don't know your supplier particularly well yet, it is recommended to clarify the inspection method. And if it is the first cooperation, the purchaser cannot personally to the factory inspection, it is recommended to use the third-party inspection agency inspection. Third-party inspection will have additional inspection costs. Normally, the first inspection costs are borne by the purchaser, and later, if there is a re-inspection, this cost is borne by the supplier. The confirmation of the inspection method and the clarification of the final quality control of the goods is determined by who is a very important part of the product quality assurance. At present, the commonly used third-party inspection agencies are SGS, Intertek, TUV, BV, a single inspection costs about 300USD, long-term cooperation can also be negotiated price. When choosing a third party inspection agency, it is important to understand their credit to prevent some inspection agencies from being strict enough in quality control and charging extra fees from suppliers to deceive the actual inspection situation.
These are the five key contractual elements that require attention. In addition to this, the contract needs to be signed and sealed by both the buyer and the seller to be effective, otherwise the contract, even if it is perfect, will have no legal effect. This is an area that many purchasers overlook. Contracts need to be exchanged by formal email, not by ordinary chat software. In addition, whether or not the supplier is allowed to ship in batches, if this is specifically required, it needs to be indicated on the contract.
If there is still something you don't understand about drawing up a sales contract, please feel free to write to us privately for a contract template or to ask questions about it.