Science, Industry and Business Library (SIBL) > International Trade

International Sales Contract Basics, Terms of Sale and Methods of Payment

International trade means that business is transacted between vendors and customers located in different countries with their respective differences in law.  The United Nations Convention on Contracts for the International Sale of Goods (CISG) governs all contracts for the international sale of goods between parties whose principal places of business are located in the United States and other countries participating in the convention.  The CISG has been adopted by most nations with developed economies and currently applies to two-thirds of all world trade.  Pace University Law School maintains a thorough website on the CISG and International Commercial Law at http://cisgw3.law.pace.edu. 

There are a number of books covering international sales contracts such as-

ICC Model Commercial Agency Contract
ICC Model International Sale Contract
International Business Transactions in a Nutshell
International Commercial Transactions
Negotiating and Structuring International Commercial Transactions

A proper international sales contract should also clearly state the agreed upon terms of sale, that is, the point at which the title to the goods and the financial responsibility thereof devolve from the vendor to the customer.  Such terms are usually specified by the use of Incoterms such as EXW, FAS, FOB, CFR, CIF, etc. the definitions of which can be found in Incoterms 2000 published by the International Chamber of Commerce.  Online, an explanation of Incoterms can also be found at http://www.i-b-t.net/incoterms.html and http://www.unzco.com/basicguide/c11.html#Terms.

Methods of payment are also spelled out in the contract whether the customer agrees to pay by open account, letter of credit or payment in advance which are the most common terms of payment.  This is normally arranged through your own commercial banker, however, it is important to understand all the various accepted and customary methods of payment for international business transactions.  The online version of the U.S. Department of Commerce's 2008 edition of Trade Finance Guide contains separate chapters explaining methods of payment such as Cash-in-Advance, Letters of Credit, Documentary Collections and Open Account.  A letter of credit, often abbreviated as L/C, is the most frequently used method of payment between international buyers and sellers especially if there is no prior history of transactions between the two parties.  According to the Department's A Basic Guide to Exporting , it is a document issued by a bank … stating its commitment to pay someone a stated amount of money on behalf of a buyer so long as the seller meets very specific terms and conditions.  Letters of credit are more formally known as "documentary letters of credit. 

Some of the library’s reference titles include:

ICC Uniform Customs and Practice for Documentary Credits *R-SIBL HG3746.R69

Letters of Credit *R-SIBL HG3745.R69

The Law of Letters of Credit: Commercial and Standby Credits *R-SIBL KF1028.D652

Letters of Credit *R-SIBL KF1028.M331

Standby and Commercial Letters of Credit *R-SIBL KF1028.W862