International Sales Contract: 8 Issues Exporters Must Address

Congratulations! You’ve made an international sale! But before you jump ahead to delivering the goods, you should be sure you’re not forgetting one crucial step: creating an international sales contract.

If you think you don’t need one, you should think again. A clear export sales contract helps define who is responsible for what, when payment is due, how the goods will be delivered, and what happens if something goes wrong.

Here’s why that matters.

What Is an International Sales Contract?

A sales contract is an agreement between a buyer and a seller that identifies the parties in the transaction, the goods or services being sold, the terms and conditions of the sale, and the price to be paid. For domestic sales within the United States, sales contracts for goods are generally governed by Article 2 of the Uniform Commercial Code (UCC), which is state law, not federal law. 

A sales contract can be a verbal agreement between two parties, a collection of documents such as a purchase order and an order acknowledgment exchanged between two parties, or a formal, written agreement signed by the buyer and the seller. The type of agreement your company uses may depend on the value of the sale, the nature of the goods, and the complexity of the terms of the agreement.

Because both parties in a domestic transaction are steeped in the American way of doing business that follows the guidance of the UCC and uses a common understanding of terms and conditions, written sales contracts are often not used even for relatively high-value transactions.

International sales, however, are different. Many international sales of goods fall under the United Nations Convention on Contracts for the International Sale of Goods (CISG). International sales involve buyers and sellers who may come from different traditions and backgrounds. And international sales can be governed by laws and regulations of two or more different countries.

Because of these differences, international sales are often more complicated than domestic sales and must address more issues. Trying to get by without a written sales contract exposes your company to many issues you may not have even thought about.

Issues to Address in an International Sales Contract

In addition to the key issues addressed in a domestic sales contract or agreement—such as the type of goods or services being sold and the price being paid—here are eight more issues that may be unique to an international sale and must be agreed upon by the buyer and the seller.

1. Delivery Terms

Instead of using FOB here, there and everywhere as spelled out in the UCC and typically used for U.S. domestic transactions, international sales typically use Incoterms 2020 rules. Incoterms define the responsibilities of buyers and sellers for delivery, costs and risk in international sales contracts. The ICC recommends using Incoterms 2020, but parties may agree to use another version as long as they clearly identify it in the contract and related documents.

Without a contract, you may be agreeing to terms that aren’t beneficial to you as the exporter and that may saddle you with fees, risks and other charges you weren’t expecting to pay.

This Incoterms Chart of Responsibilities breaks down all 11 Incoterms, so you can choose the best term for your situation. 

2. Currency

For your domestic sales, there’s no question that you will be dealing with U.S. dollars. For international transactions, it’s not necessarily that cut and dried. By identifying this in your contract beforehand, you won’t be surprised at what currency lands in your bank account. Without a sales contract, you might end up forced to deal with expensive currency exchanges, unexpected bank fees or exchange-rate risk.

3. Insurance

I recommend using your sales contract to identify who’s responsible for providing insurance for your goods, even though Incoterms cover this to some extent. By addressing insurance in the contract, you can save yourself some headaches and hassle if goods are damaged or lost.

This is especially important if your contract uses terms such as CIF or CIP, where insurance obligations are part of the Incoterms rule, or if your buyer expects coverage beyond the minimum required.

4. Export Compliance

International sales contracts can help you stay compliant with U.S. export regulations. Your contract should support—not replace—your export compliance process, including product classification, restricted party screening, license determination, end-use and end-user review, and destination checks.

Be sure to pay attention to language that might violate U.S. antiboycott provisions. The Bureau of Industry and Security (BIS) says U.S. antiboycott rules may require U.S. persons to refuse to participate in unsanctioned foreign boycotts and to report certain boycott-related requests.

You should also make sure that your contract and documentation process account for the Destination Control Statement when required. Under the Export Administration Regulations, the Destination Control Statement must be incorporated into the commercial invoice for certain tangible exports of items on the Commerce Control List, unless an exception applies or the item is designated EAR99. 

5. EEI Filings

An international sales contract is an unmistakable way to help identify parties in your transaction, and it can include specifics about who’s going to be filing Electronic Export Information (EEI) through the Automated Export System (AES).

Even in a routed export transaction, you should strongly consider negotiating for permission to file through AES. Under the Foreign Trade Regulations, a routed export transaction is one in which the foreign principal party in interest (FPPI) authorizes a U.S. agent to facilitate the export and prepare and file the EEI. If the FPPI agrees to allow the U.S. principal party in interest (USPPI) to file the EEI, the FPPI must provide written authorization. (Learn more in our article, Standard vs. Routed Export Transactions: What U.S. Exporters Need to Know.) 

Spelling out these responsibilities in the contract can help avoid confusion later, especially when the buyer, freight forwarder, carrier and exporter all have different pieces of information needed to complete the filing accurately.

6. Payment Terms

If you are getting paid under a letter of credit, it’s important to understand the deadlines you need to meet to get paid. A list of these deadlines and the ramifications to both parties if they are not met should be spelled out in the sales contract. Learn more in our article, 7 Common Mistakes When Preparing Letters of Credit.

The contract should also identify the method of payment, payment due date, required documents, bank charges, late payment consequences and what happens if documents contain discrepancies.

7. Warranty Obligations

Are you responsible for repairing or replacing the goods if something is wrong with them? Who pays for return freight? Who handles customs clearance if replacement parts must be shipped across borders? Without listing this information in the contract, you may find yourself in a legal battle should an issue arise with the goods.

Check out Prema Nakra’s article, Global Warranty Management: Do You Have a Process in Place?, for more on this process.

8. Export Documentation Responsibilities

A variety of documents are required as part of every export. Some are used for export compliance, some are required for transporting the goods, some are used for import clearance, and others are used to transfer payment from the buyer to the seller.

An international sales contract should identify all the required documents and who is required to complete them and when they are due. That may include the commercial invoice, packing list, certificate of origin, bill of lading or air waybill, insurance certificate, export license, inspection certificate, letter of credit documents and any country-specific import documents required by the buyer.

Shipping Solutions export documentation and compliance software can help exporters create accurate documents faster, avoid redundant data entry, screen restricted parties, manage AES filing and reduce the chance of errors that delay shipments or payment.

Do You Really Need an International Sales Contract?

Yes. A written international sales contract is one of the best ways to prevent misunderstandings between an exporter and a foreign buyer. It clarifies delivery terms, payment responsibilities, export documentation, compliance obligations, warranty expectations and dispute resolution before the shipment leaves your dock.

Of course, a sales contract is more expensive and complicated to draw up than simply taking someone at their word. However, it’s certainly worth it. With a sales contract, you have a legally binding document that sets the stage for your export and helps guarantee you’ll get paid on time. And, in case any issues arise, you can include a dispute resolution or arbitration clause to help settle disagreements.

There are different kinds of contracts you might be working on: contracts for direct customers, distributors, agents and others. You need to make sure you’re structuring the contract appropriately for each relationship and each shipment. I suggest you consult with an attorney to make sure you’re creating the international sales contract that’s most beneficial for you and your particular needs.

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This article was first published in June 2016 and has been updated to include current information, links and formatting.