Exporting Contracts: The Backbone of Your Business
By Michelle Collins | May 31, 2002
Exporting without a contract is like getting onto a boat with no life preserver tied to the railing. Contracts are an essential part of your exporting business. Regardless of how much you are planning to ship or how often, you need a contract that outlines, in full, all the terms and conditions of every sale. This document will protect both you and the buyer if anything goes wrong with the shipment.
You and your buyer can choose to put whatever you feel is necessary into the contract; however, a few basic items should be addressed.
A clear description of the goods or services is a key component; once these items have been defined, there can be no confusion about what you drop off at the shipping docks and what arrives on the buyer's doorstep.
What a buyer is really looking for is a quality product delivered on time, says Renato Tavares, Director of International Commercial Business with the Canadian Commercial Corporation (CCC). The CCC is a federal government agency that provides contract expertise to exporters.
"What goes into a sales contract is the scope of the work. What exactly are you supplying? What filters from that scope for the product is how are you going to get paid, when do you deliver, and what are the penalties if you do not ship the goods when the buyer wants them in time?" says Tavares.
International contracts differ in a number of ways from those you may have with suppliers in Canada. Tavares says when you're selling something internationally, you must really cater to the buyer's needs. In order to play by these rules, it's important to know the laws of the foreign country and any particulars that apply to that country.
Another important difference between domestic and international sales contracts is the laws that govern the document. "It's like the old saying, 'When in Rome, do as the Romans do.' When you're doing business internationally, nine times out of 10, you are to abide by the buyer's applicable law," says Tavares.
While you don't need a lawyer to make the contract legal and binding, you will go through a particular process to ensure that the contract is legally recognized in each country. "[For] most international contracts, the representative or the seller must prove that he has the authority to bind that contract. That authority is normally demonstrated by a power of attorney that is done in Canada by the foreign embassies in Canada," says Tavares.
Once the contract has been signed, the power of attorney authorization must be delivered to Ottawa, where it is stamped and authenticated as being valid in Canada. It is common, Tavares says, for these provisions to be written right into the contract.
While verbal agreements are also legally binding, they are not recommended. If you enter into a verbal agreement and something goes wrong, it will be difficult to recoup your losses.
"What's very important, when doing business internationally, is the culture and the relationship that you have to develop with the buyer. If you have a very good relationship with a specific buyer, you can write the contract and then put it on the shelf. What takes that contract to fruition is really the relationship," says Tavares.
If things go wrong
If a section of the contract is broken, the penalty clauses that were originally written into the contract come into effect. Another component that you need to hammer out with your buyer is which country's laws will govern disputes. While you may not need a lawyer to sign the contract, you will definitely need some legal advice on how to deal with these international penalties.
"You need to be very careful to ensure that there's a well-written contract that ensures you'll get paid," says Tavares. "A lot of suppliers will ship the goods and realize that they're not going to get paid. It's important that you seek help, especially when you're just starting out."