10 typical mistakes in contracts for the international supply of goods that should be avoided

A correctly drawn up contract is a guarantee of successful cooperation and financial security of the parties. However, even experienced entrepreneurs and lawyers can make mistakes that lead to losses and disputes. Let's consider the 10 most common mistakes when concluding contracts and how to avoid them.

1. Lack of a detailed description of the subject of the contract

Vaguely worded conditions can cause disputes. It is important to specify:

• product characteristics (model, technical parameters, quality standards, permissible deviations in quality and quantity, quality certificates issued by specific institutions), indication of intended use, if it is important for compliance with technical or regulatory requirements , the possibility of replacement by analogues;

• accompanying intellectual property rights;

• warranty obligations;

• return or exchange conditions.

2. Incorrect registration of guarantee payment/advance (advance payment)/deposit

Sometimes these concepts are confused, which leads to undesirable consequences. The deposit is non-refundable in case of breach by the buyer, the advance (advance payment) must be returned if the buyer withdraws from the contract. A guarantee payment can have a mixed meaning. Therefore, it is very important to clearly define in what sense the advance payment/deposit/guarantee payment is made, as well as to control that the purpose of the payment in the payment documents corresponds to its essence according to the text of the contract.

3. Ignoring exchange rate changes or inflation

Payment under contracts for the international supply of goods is usually made in recognized currencies, such as the US dollar, EURO, depending on the region, or one of the parties can choose a currency, or payment in both currencies is permissible, however, there is a fixed rate in the contract or a link to the rate of the Central Bank of the EU or another bank.

Long-term contracts should include:

• price change restrictions and the procedure for its review;

• possibility to revise or increase the price in long-term contracts.

4. Absence of confidentiality conditions

If the contract provides for the transfer of commercial information, it is worth adding provisions on:

• non-disclosure of data;

• protection of personal information in accordance with legislation;

• liability for data leakage.

5. Determining the term of payment on the account without specifying whether it is an advance payment or a final settlement

Sometimes, if there is a relationship of trust between the buyer and the seller, then the moment of payment is determined by the moment of presentation of the invoice without determining whether the goods should be delivered at that moment or not, but this can lead to problems when making the payment and there are elements of the parties' relationship, which has a number of tax consequences.

6. Absence of clear conditions for terminating the contract

Many contracts do not provide for clear termination mechanisms. This can create difficulties when you want to end the cooperation. It is important to include:

• terms and grounds for termination;

• the procedure for notifying the other party of termination of the contract

• the term of termination of the contract after sending the notice of termination

• procedure for returning funds or property;

• procedure for stopping new supplies

• possible fines or sanctions.

7. Ignoring fines

The contract should include responsibility for:

• violation of deadlines;

• non-payment or late payment.

• improper fulfillment of obligations;

  This increases the level of discipline of the parties and reduces the risks of financial losses.

8. Unclear conditions of force majeure

Common mistakes:

• the absence of a specific list of force majeure circumstances or the inclusion of non-standard circumstances, such as the absence of goods on the market;

• requirements that are difficult to meet (for example, immediate notification in times of war or emergency);

• the uncertainty of the consequences (whether the fulfillment of obligations is postponed or they are completely canceled).

9. Absence of a dispute settlement procedure

Contracts with a foreign element must include:

• applicable substantive law, place of dispute resolution — arbitration (indicate the name of the arbitration institution or ad hoc arbitration) or the courts of one or both parties;

• whether the jurisdiction of the arbitration is exclusive, or recourse to national courts is permitted;

• mechanism of pre-trial settlement (mandatory exchange of claims).

10. Incorrect signing of the contract

Mistakes to avoid:

• the contract is signed by a person without proper authority (it is important to check powers of attorney, statutory documents);

• lack of seal (if provided);

• signature only on the last page without sighting of all pages in the case of signing scans or in paper form (risk of replacing parts of the document);

• electronic signatures (e.g. DocuSign, Adobe Sign) are increasingly used in international contracts, and it is important that they are recognized by the relevant legislation.

• exchange of scanned versions of the contract by e-mails of unauthorized representatives, not to corporate e-mails, or via messengers;

• lack of verification whether the counterparty signed the version you sent or made unauthorized changes.

Competent drafting of the contract helps to avoid misunderstandings and financial risks. If you want to minimize possible mistakes and use professionally prepared contract templates, contact Instadoc — a service that will help automate legal processes and make your business safer.

Checklist for checking the international supply of goods contract

1. Description of the subject of the contract

✔ The product is clearly defined (model, technical characteristics, certification)
✔ Indicated the intended use of the product (important for compliance with regulatory requirements)
✔ The terms of the guarantee, the possibility of replacement or return are described

2. Payment terms and settlement currency

✔ It is indicated whether there is a prepayment, a deposit or a guarantee payment
✔ Consequences in case of non-fulfillment of financial obligations are determined
✔ Indicated currency and conversion rate (fixed or variable)
✔ Payment terms are prescribed (final or relative)

3. Delivery terms and transfer of risks

✔ Incoterms 2020 used (EXW, FOB, CIF, etc.)
✔ The moment of transfer of risks and ownership is determined
✔ Indicate who is responsible for transportation, insurance and customs procedures

4. Documents accompanying the goods

✔ Certificate of readiness of the product for shipment

✔ Proforma invoice, invoice
✔ Transport documents (CMR, Bill of Lading, Air Waybill)
✔ Certificates of conformity and origin
✔ Other documents provided for by law or the terms of the contract

✔ Procedure for providing scanned copies and originals of documents

5. Terms of contract termination

✔ Grounds for early termination are determined
✔ The procedure for returning payments or compensations has been established

6. Force majeure

✔ A specific list of force majeure circumstances is prescribed
✔ Obligations of the parties regarding notification of force majeure are defined
✔ The consequences for the performance of the contract are specified

7. Liability of the parties and penalties

✔ Liability for late delivery or payment is provided
✔ Defined fines or penalties for non-fulfillment of obligations

8. Dispute Resolution and Applicable Law

✔ It is indicated which law applies to the contract
✔ The dispute resolution body (arbitration or court) is determined
✔ The procedure for pre-trial settlement is prescribed

9. Signing and authentication of the contract

✔ The credentials of the signatories have been checked
✔ Legally recognized signature methods are used (electronic or physical)
✔ It is ensured that the parties sign identical versions of the contract

This checklist will help you avoid key risks when concluding an international supply contract. If detailed adaptation to your agreement is required, Instadoc can provide professional templates taking into account jurisdiction and contract law requirements.