A checklist for an effective sales agreement In addition to determining the quantity of goods and any unit price, a seller and buyer should agree the following points to minimise the risk of dispute and thereby establish the appropriate Incoterm. ✓✓ The terms of delivery of the goods ✓✓ The point at which the risk in respect of the goods passes from seller to buyer ✓✓ Who should clear goods through customs and where ✓✓ Who arranges for insurance for the carriage of goods and up to what point ✓✓ What precise risks to the goods need to be covered and specifically shown as covered on the insurance document ✓✓ What commercial documents are needed and what should be shown on them ✓✓ Whether any other documents (such as inspection certificates) are needed and who is to issue them The sales contract and the method of settlement Having agreed that the method of settlement is to be a documentary credit, it is important that the sales contract be as specific as possible in describing the payment terms and the type of documentary credit that is required. For example, a sales contract that merely indicates ◆◆ settlement by irrevocable documentary credit, ◆◆ settlement by documentary credit, ◆◆ documentary credit payable at sight, or ◆◆ documentary credit payable 60 days after the date of shipment and such like may not achieve the expectations of the seller. As will be noted in Chapters 6 and 7, there are a number of different forms of documentary credit, each of which can offer an element of benefit to a seller or buyer. For a seller that is looking to sell its goods on a ‘sight’ basis with the expectation of full payment, less normal bank charges, once a complying presentation is made to a nominated bank, it is not sufficient to state in the sales contract ‘payment by documentary credit at sight’. The buyer, as applicant of the documentary credit, may arrange for the issuance of a documentary credit that is available by negotiation, on a sight basis (and therefore meet the condition of the sales contract for a sight documentary credit), but the outcome will be that if the seller (as beneficiary) requires immediate settlement, it will receive the proceeds for a complying presentation less interest for the period between the nominated bank effecting settlement and the issuing bank providing the nominated bank with reimbursement. A seller requiring immediate settlement, without deduction for interest, should indicate ‘documentary credit available with [name of its preferred bank] by payment’. These types of issue will be covered in Chapters 6 and 7.