The Major Components of an Export Sale
How do you react to an email from a customer located thousands of miles away who wants to buy your product? To get the ball rolling every export sales transaction must contain information pertaining to the product description, price, quantity, and transportation, but within those confines lies a host of other details that can go wrong. The need for clear instructions on the terms used in negotiating the sales contract cannot be emphasized enough. Let’s take a look at the six major components to an export sale. These may not be all that you need to pay attention to, but they are a good starting point.
A customer sends an email asking for information on a specific product you make. Although you might have the tendency to narrow down your offering so as to not confuse your customer, broadening your offering gives your customer more options, which leads to a greater likelihood of acceptance.
The Offer (Proposal)
Once you clarify what product options are available to a customer, drill down from there. More is better than less here because customers nowadays have the luxury of finding out just about everything there is to know about a product thanks to the internet. State all the salient product features color, size, price, material composition, photo, a product guarantee if any, and anything else that is relevant to the customer’s inquiry. Be sure to distinguish what sets your product apart from others, too. This is something all the research in the world may not uncover when a customer does his homework.
Note: Be careful when submitting a photograph because if you end up shipping a product that doesn’t look exactly like the one in the photograph, you could be liable. The buyer can claim he expected what was featured in the photograph regardless of what was described in the offer.
From there, the customer is in a position to select something that suits the needs of customers in his marketplace. So be sure to date each offer page and state that “the business is subject to prior approval at headquarters.” What’s the reason for this? The customer might not have a sense of urgency and comes back to you a year later with his acceptance based on your original offer. By then, the product may have been discontinued or be priced higher. It gives you a chance to make a new offer based on current conditions.
Whether you are an importer, exporter, broker, consultant, lawyer, banker, transporter, insurer or aspiring entrepreneur of international trade, you should familiarize yourself with Incoterms rules, which are considered essential to use in contracts for the sale of goods internationally. It is especially important that you master Incoterms for the preparation of a proforma invoice — see the quote section below.
Importers and exporters must agree in advance on their respective roles and the terms, conditions, and definitions of the sale. A buyer and seller should know where a risk begins and ends, who is responsible for what (e.g., costs and documentation), who owns what and at what geographical point.
For example, to determine the definition of F.O.B. (free on board), C.I.F. (cost, insurance, and freight), C&F (cost and freight) and how it affects a sales contract, you should learn about incoterms.
Even though you think that when your customer accepts your proposal that you are ready to ship, you’re not. You still must issue what is called a proforma invoice. A proforma invoice has all the familiar components of an ordinary domestic invoice — a description of the product, an itemized listing of charges and sales terms. You should read about what a pro forma invoice is and how it is prepared.
Once your customer approves the proforma invoice, it will become your actual invoice for the order. The customer will also use the proforma invoice to obtain any necessary funding or import licenses. Your customer should communicate acceptance in a short written sentence or two, such as the following (usually via email), with a signature: "We accept your proforma invoice No. 1234 against our P.O. No. ABCD." You will then respond: "Acknowledge and confirm your P.O. No. ABCD against our proforma invoice No. 1234."
That's it. You have a legitimate sale. Before you release the order, though, you and your customer must negotiate terms of payment.
Everyone knows how vital it is to collect payments on overseas deals. The same goes for making timely payments to overseas suppliers. There is a catalog of secrets on international trade finance that only those in the trenches know about.
Now all you have to do is go back to your Incoterms and proforma invoice, produce the goods and ship them.