An obligatory element of contracts, especially international, is an article establishing the form of payment. In international trade, cash is almost never used for direct payments, but collection and letter of credit are used. For collection are those forms of calculation, when the seller sends orders to his bank to receive from the buyer the amount of payments upon presentation of the relevant commodity documents. In the form of a letter of credit, the bank’s obligation to make a payment to the seller, at the direction and at the buyer’s expense, of the value of the goods delivered against the documents presented to the bank by the seller, is used.
There are the following types of letters of credit:
Confirmed letter of credit – when the bank where this letter of credit is opened must pay the entire required amount regardless of the refund by the bank of the buyer who opened the letter of credit of the specified payment amount;
unconfirmed – the seller’s bank informs it of the opening of a letter of credit, but pays the payment amount only when it is received from the buyer’s bank; revocable – the bank can change or cancel its obligations;
irrevocable – if a letter of credit is already opened to the seller, then the obligation cannot be changed without its consent;
divisible – when after each delivery of goods to the seller a certain amount is paid;
indivisible – when the entire amount is paid to the seller after the fulfillment of all obligations under the contract on his part.
The seller usually seeks to open a confirmed, irrevocable or divisible letter of credit.
The claimant article defines the procedure for filing claims by any of the parties to the transaction if the terms of the contract are not fulfilled. It regulates the procedure for determining inconsistencies (quality, deadlines, etc.), the form of documents (act, conclusion), the timing of claims and sanctions to the guilty party.
The article on guarantees establishes the seller’s responsibility for the quality of the goods during a certain warranty period (12 months after the acceptance certificate, 18 months from the delivery date, etc.), it is also important to provide for supplying a set of spare parts and the possibility of servicing the equipment in the post-warranty period for a separate fee or service.
In the article listing the circumstances of force majeure (force majeure), it is necessary to define as fully as possible those who are not dependent on the parties and who are able to change the term of the contract or completely terminate its circumstances for which the parties are not responsible. Such circumstances usually include accidents, natural disasters, embargoes, other legislative prohibitions, etc. The contract should contain an organization that will witness the occurrence of such circumstances and confirm this with a document. Usually in this role are the Chambers of Commerce – countries of the transaction.
The contract also includes an article on arbitration, defining the procedure for resolving disputes that cannot be settled by the parties to the transaction. Most often, disputes are resolved by arbitration commissions created by chambers of commerce, trading markets, or by an arbitration commission attached to the International Chamber of Commerce.