Hi, I’m Geoff Runcie and I’m back with another episode of the International Trade Series. This session will focus on an “Introduction to Incoterms”. What they are, how to interpret them correctly, and how to apply them. I’m joined once again by renowned global trade expert Murdo Beaton and Abdul Mann, creator of the cloud-based export solution EdgeCTP Blog.
Today you’ll hear just one in a series of questions presented to Murdo, but if you’d like access to the entire session or future sessions there is a link here. Alternatively, feel free to drop me an email on Support or visit www.edgectp.com.
I hope you find this useful and more importantly it gives you the insight to go global.
Geoff:
My question for today is, do Incoterms ensure payment is received?
Murdo:
The answer very simply is no. Incoterms do not ensure that payment is received, but what Incoterms can do is ensure that nothing has happened as far as the exporter is concerned, that could actually jeopardize payment being received. It’s when the selected Incoterm is not properly dealt with, handled, or executed that the danger to payment is actually introduced. So whilst we can say “No, Incoterms do not have any role to play in ensuring payment.” they do help to make sure the buyer hasn’t been given any reason, as far as the delivery is concerned not to pay.
Abdul:
Right, so the obligations been set upfront, and therefore if they’ve used the standard Incoterms 2010 if there is any sort of discrepancy you have the right to be able to take some legal action. You can say “These are the obligations we agreed upon and now the other party seems to have reneged on them, and therefore I want compensation, etc.” So it strengthens your case, it doesn’t actually guarantee payment?
Murdo:
No, not at all. If you execute the Incoterms as you should, in other words, if you deliver your goods to the agreed place of delivery and you have done everything as the contract of supply demanded that you should, including the execution of the performance within Incoterm that you selected. Now there is nothing else you could have done so you have fulfilled your obligation.
(Scroll down to continue…)
Abdul:
Your end of the bargain.
Murdo:
Yes. So you have given the buyer no reason as to why payment should not be forthcoming, and if payment is not forthcoming after having done all that then it must surely be a buyer default or some other reasoning. That would give you the right to take some recourse to recover the monies that you were actually due.
Abdul:
Or your goods back.
Murdo:
Ummm, getting your goods back would be wholly questionable if the goods had already been released from the delivery point to the buyer.
Abdul:
Oh OK. So if I sent my widget to a buyer in Angola and they ended up in the Angolan dry dock there, then the guy doesn’t stump up according to a particular Incoterm that I had chosen, then what’s my recourse? Do I take him to a court or do I try and say give me back my goods?
Murdo:
It depends entirely on whether you have unconditional ownership of the goods at that particular moment in time, or whether you have simply conditional ownership shared with the buyer.
Abdul:
Do Incoterms define that?
Murdo:
Incoterms defines the nature of ownership that you have in the goods at that particular time. So if the Incoterms that was selected suggests that the buyer took the physical risk and the delivery in the goods at the port of export from your market, then the buyer at the time of arrival at the destination port has conditional ownership in them. So it’s hardly likely that you can claim something in which another party also has ownership, so that becomes messy.
Abdul:
Right.
Murdo:
So the likelihood of you getting your goods back, I’m not saying it’s absolutely not, but it could be a difficult journey if you’re going down that road.
Abdul:
So the only recourse I’ve really got is to recover the money.
Murdo:
Absolutely, and that could entail legal proceedings. So the answer always is, avoid not doing something that you were supposed to do and avoid not doing it correctly.
Geoff:
I hope you enjoyed this audio. If you’d like more information on international trade, go to www.edgectp.com.
