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Trade Agreements

If everything is in order, the profit levels are suitable, and both you and the company are happy to proceed with the deal, the next stage is to draw up a trade agreement.

A cast iron contract is vital. It should list the parties and products involved, plus the method and amount of payment. It must also state who is responsible for after sales service (such as dealing with faulty goods), and who is to bear the transport costs, stating at which point the risk is transferred from supplier to customer.

Other important documents you may require include the Certificate of Origin, which is an invoice supplied by the manufacturer used to simplify customs procedure at the port of entry. A Bill of Lading is mandatory for all goods shipped by sea, which acts as a receipt for the goods and states at what stage ownership is transferred.

To simplify contracts, a set of internationally agreed terms relating to transport - known as incoterms - are used. They are listed below. Let's say you are importing dress materials from India.

The goods may be supplied 'ex-factory', meaning that the price covers supply of goods from the factory but you must bear the additional costs of having the goods transferred and loaded onto the ship in India and unloaded at the other end.

Alternatively, the goods may be supplied 'ex-dock', meaning that the price covers the transport of goods from the factory right through to unloading at your warehouse in the UK. Ask your Chamber of Commerce for a copy of ICC's booklet, Guide to Incoterms.

As an agent, your contract won't make you liable for any transport costs, but there are additional considerations. It must detail your sales territory, the duration of the agreement, terms of renewal, the amount of commission and method of payment, along with who bears the responsibility for advertising.

It is important that the trade agreement gives you exclusive trading rights, otherwise your buyers might start ordering direct from the supplier to save the amount of your commission. Also make sure you have first refusal on renewal of the agreement - you don't want to lose your territory to someone else once you've spent time building up your contracts.

Incoterms

Ex Factory
supply of goods from factory

FAS (free alongside ship)
supply of goods from factory, transport from factory to ship

FOB (free on board)
supply of goods from factory, transport from factory to ship, loading up of ship

CandF (cost and freight)
supply of goods from factory, transport from factory to ship, loading up of ship, freight

CIF (cost, insurance, freight)
supply of goods from factory, transport from factory to ship, loading up of ship, freight, insurance

Ex Dock
supply of goods from factory, transport from factory to ship, loading up of ship, freight, insurance, unloading.

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What trade agreements are necessary before you start to import goods.