How do international trade contracts work and what should be included?

Trading with overseas customers brings with it additional layers of risk over and above those of trading with domestic customers. That shouldn’t necessarily deter you though, as international trade also offers huge opportunities to build your business plus there are a number of ways you can mitigate those risks.

One of the best ways of managing risk and removing uncertainty is to have proper contracts in place with your customers. A clear, written contract, agreed by both parties, helps you avoid misunderstanding and sets out the terms of the sale and support your Terms & Conditions.

What should be included in a contract?

Contracts will differ, depending on the industry and type of product being traded but there are certain details that should always be included:

The specifics of the sale – what the goods are, the quantity, and the agreed price

Where the goods will be delivered

Who arranges the transport

Who is responsible for insuring the goods, and who is paying for the insurance

Who handles customs procedures

Who pays duties, taxes, and tariffs

When payment is due

What payment method will be used

What currency payment will be made in

Is it enough to use Incoterms® 2020?

Incoterms® 2020 are a set of internationally recognised terms produced by the International Chambers of Commerce (ICC). There are 11 in total and they set out the different arrangements for the delivery of goods from seller to buyer and determine the obligations, costs, and risks between the 2 parties. We have more detailed information about Incoterms® 2020 elsewhere on the site.

While all businesses engaging in international trade should certainly agree with their customer the appropriate Incoterms® 2020 to use (so that everyone knows who is paying for what and where the risk passes from one party to the other), they only relate to the transportation and delivery of the goods, and not all the wider aspects of the sale. Therefore, a contract should be used in conjunction with Incoterms® 2020.