International Trade Process: Sales, Shipping, and Payments

Posted on Mar 25, 2025 in Commercial and Financial Management

International Trade: A Step-by-Step Process

Sales Agreement

The seller and the buyer agree on the terms of sale. This includes:

  • Price
  • Quantity
  • Quality
  • Delivery terms

Essential Documentation

Both the buyer and seller require important documentation. These documents facilitate a clear understanding of the transaction and ensure legal compliance. Examples include:

  • Invoice: Detailing the goods sold and the price.
  • Bill of Lading: Showing that the goods have been shipped.
  • Certificate of Origin: Indicating where the goods originate.

Customs Clearance (Exporting Country)

Before goods can be exported, they undergo customs inspection. Customs officers examine the documentation and the goods to ensure compliance with regulations. Export duties may be applicable.

Shipping and Tracking

The seller or a designated freight forwarder manages the shipment (via air, sea, or land). The buyer can typically track the shipment’s progress.

Customs Clearance (Importing Country)

Upon arrival in the buyer’s country, goods undergo another customs inspection. Officers verify compliance with import regulations. Import duties and taxes may be levied.

Delivery and Inspection

Once the buyer receives the merchandise, they verify that it matches the order. If discrepancies or damages are found, the buyer contacts the seller.

Key Considerations

  • Effective communication between buyer and seller is crucial to prevent issues.
  • Accurate and complete documentation is essential.
  • Each country has specific customs regulations.
  • Thorough inspection of goods upon arrival is important.
  • Shipping methods impact cost, transit time, and security.

Incoterms

Incoterms are standardized terms used in international sales contracts. They define:

  • The point at which responsibility for the goods transfers from the seller to the buyer.
  • Who is responsible and liable for the goods during shipment.
  • Who bears the costs associated with the goods and their transportation.

EXW (Ex Works): Under EXW terms, the seller’s responsibility ends when the goods are made available at their premises (e.g., factory, warehouse). The buyer assumes all responsibility for loading, transportation, and customs clearance.

Letter of Credit Process

A letter of credit (L/C) is a financial instrument that facilitates secure international trade transactions. Here’s a simplified breakdown of the process:

  1. Application: The buyer applies to their bank to issue an L/C in favor of the seller, specifying transaction details.
  2. Issuance: The issuing bank reviews the application and, if approved, issues the L/C and sends it to the seller’s bank (advising bank).
  3. Notification: The advising bank notifies the seller that an L/C has been issued and verifies the terms and conditions.
  4. Shipment: The seller ships the goods and gathers documents proving compliance with the L/C terms.
  5. Document Submission: The seller presents these documents to the advising bank, which forwards them to the issuing bank.
  6. Review and Payment: The issuing bank reviews the documents. If they comply with the L/C, the bank pays the seller.
  7. Document Delivery: The issuing bank delivers the documents to the buyer, enabling them to claim the goods.