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◇Get an overview of the major items in a Sales Contract for an international trade transaction．
◇Learn the concept and major types of international settlement．
◇Learn the documents used in international settlement．
◇Consider the connection among international trade， international settlement and cross－border e－commerce．
International trade is the exchange of goods and services across national boundaries． On the one hand， it concerns trade transactions of both import and export． On the other hand， it includes the purchase and sale of both tangible goods and intangible services． Exports are the merchandise individuals， companies or nations sells whereas imports are the goods and services individuals， companies or nations purchase．
Starting with enquiry and through a negotiating process of offer and counter－offer， the next step in any international trade arrangement is to reach an agreement with the overseas trade partner． This agreement can be called a contract or a confirmation and can be prepared by either the exporter or the importer． When the agreement is made by the exporter， it is to be called the sales contract or sales confirmation； when it is produced by the importer， then it gets another version of purchase contract or purchase confirmation． No matter which way to call it， this agreement is a legal document and creates a legal binding upon the contractual parties．
As shown in Figure 1.1， a sales contract consists of such major items as description of commodities， quantity， unit price and amount， price terms， packing，shipment， payment and insurance． It also contains such major clauses as quality ／quantity discrepancy and claim， force majeure and arbitration．
Figure 1.1 Sales Contract
Price terms in the contract refer to INCOTERMS， the English initials for the International Rules for the Interpretation of Trade Terms，published by International Chamber of Commerce in Paris， France． Price in a sales contract must be quoted in price terms．
Every trade transaction， whether it is a business of export or import， is to fulfill the sales contract with the merchandise delivered and the payments settled． The item“terms of payment” in a sales contract refers to the payment methods． In the sample contract， the payment method chosen for this transaction is letter of credit．
International settlement refers to the money transfer via banks to settle accounts， debts and claims among different countries．
International settlement is originated from international tangible and intangible trade transactions as well as international non－trade transactions such as international lending and investment， international aids and grants， cross－border personal remittance， etc． For this reason， International settlement is divided into two types：international commercial settlement， which is created for the settlement of international trade， and international non－commercial settlement， which is made for non－trade transactions． While international non－commercial settlement is of equal importance in international business， international commercial settlement will constitute the core part in this book and it will be the major focus．
International settlement centers around payment methods． In a sales contract，payment methods can also be called “ payment terms” or simply as“ payment”．There are five payment methods： remittance， collection， factoring， letter of credit and letter of guarantee， each with its own subdivisions． Among them， remittance，collection and letter of credit are the three most popular ones in international trade．Traders must make proper choice of payment methods for a transaction．
There are two important ingredients in a payment method： financial documents and commercial documents． Without them， payment methods are not operational．
The word “financial” implies that these instruments are made for making payment． Financial documents can also be called “ financial instruments”“credit instruments”， or simply “ instruments”． They mainly refer to bills of exchange，promissory notes and checks． They are made to facilitate the settlement of payment．
As international trade involves traders from different countries and goods are transferred across national boundaries， cash － payment is both inconvenient and dangerous for the traders． In the modern era， financial instrument has taken the place of cash and become the medium of exchange to settle payments．
Financial instruments can be simply understood as“orders” given to make or collect payments． When such “orders” are performed， payments are settled． With the involvement of financial instruments， international settlement has moved into the era of non－cash settlement． As a result， it is the instrument， not the cash， that moves throughout the settlement process in international trade．
Commercial documents are to provide documentary evidence that goods are produced， packed and insured properly and are delivered of correct quantity and quality and in timely fashion． They are made to facilitate the delivery of goods．
Commercial documents are varied and they signify whether the responsibilities in a transaction regarding the production， packing， shipment， or insurance， etc． of the goods have been fulfilled by the traders． Popular types of commercial documents are commercial invoice， packing list， bills of lading， insurance policy，inspection certificate and certificate of origin， etc． When one type of commercial document is produced， it is considered that the related obligations are taken up．
In conclusion， the realization of payment methods calls for the participation financial instruments or commercial documents． In other words， payment methods，financial instruments and commercial documents are closely related and they constitute the framework of international settlement．
The word “ title” signifies the right of ownership． With the development of shipping and insurance industries， two kinds of commercial documents， bills of lading and the insurance policy， have become the title documents．
In the case of bills of lading， the holder of them becomes the owner of the goods． As a result， when the seller surrenders the bills of lading， it means that he has delivered the goods and when the buyer receives these documents， it means that he has received the goods． The delivery based on title documents is called constructive delivery which is in contrast to actual delivery in early international settlement． In actual delivery， goods are delivered only when they are physically in the hands of the buyer．
When goods have been documented， they have changed the landscape of the international settlement greatly because firstly， it is possible for both the delivery and the payment to be made against documents rather than against the actual goods， and secondly， documents have become the center of international settlement．
International settlement is vital for the successful fulfillment of a sales contract in an international trade transaction． The relationship between international trade and international settlement can be further illustrated in the following points：
（1）Accounts， debts and claims arising from international trade are to be settled through international settlement．
（2）Proper choosing and execution of payment methods is essential in the establishment and fulfillment of any sales contract．
（3）Payment methods of international settlement perform the task of delivery for the importer through commercial documents and the task of payment for the exporter through financial instruments． Consequently， funds are transferred against the movement of the documents （goods） to complete an export／ import transaction．
（4） Different payment method leads to different procedure of a given trade transaction．
（5）Different payment method decides the particulars of the financial documents drawn and the commercial documents made in a given trade transaction．
The growth of the Internet and the development of international logistics as well as online payment have provided the customers from all over the world the ability to buy and sell products or services from internet－based platforms． This is known as cross－border e－commerce （CBEC）． In recent years， the rapid growth of CBEC has accelerated online consumption all over the world and it has gradually become an important driving force of international trade．
According to the type of interaction， the main modes of CBEC can be divided into B2B （business to business）， B2C （business to consumer）， C2C （consumer to consumer） and so on． At present in China， B2B trading volume accounts for nearly 90％ of the total CBEC market size． It is being increasingly realized that the B2B holds the most potential and the enterprise is in the dominant position in the CBEC market world over．
The major CBEC platforms are Amazon，eBay，Alibaba，DHgate，AliExpress， Wish， and Shopee． Among them， Amazon is the largest e－commerce company in the United States and one of the first companies to start operating e－commerce． Alibaba is a very big CBEC platform from China． eBay is a multinational e－commerce corporation， facilitating online consumer－to－consumer and business－to－consumer sales．
CBEC， as a new mode of operation， is different from the traditional foreign trading． The major differences are listed in Table 1.1．
Table 1.1 Differences between Traditional International Trade and CBEC
Compared to traditional international trade， the advantages of CBEC is that any company， manufacturer or trader， large or small， or individuals can participate in foreign trade via the internet－based platforms． The CBEC sellers can put their products or services in front of， literally， hundreds of millions of new potential overseas buyers． As the trading process in CBEC is more shortened and flattened than traditional international trading mode， the CBEC consumers can get products or services that may be unavailable or expensive in the home markets．
Cross－border payment and settlement refers to the behavior of the parties involved in international economic activities to pay off international creditor's claims and accounts by the debtors with certain payment instruments and methods， and generate funds transfer and exchange． Cross － border payment and settlement methods can be divided into traditional payment methods and CBEC payment methods． Traditional payment methods are mainly used for B2B transactions and they include remittance， collection and letter of credit． CBEC payment methods refer to the payment settled through bank cards， bank transfers， or online third－party payment platforms， such as PayPal， Alipay， Western Union， etc．
Traditional payment methods have a long history． Methods such as letters of credit are still widely used in CBEC， especially when the trading volume and amount are large． In recent years， with the popularity of the Internet and people's continuous recognition of cross－border online shopping， CBEC payment methods have developed rapidly． In the market， as traditional international trade and CBEC will supplement each other， traditional payment methods and CBEC payment methods will complement each other and coexist together．
1.What are the components of international settlement？
2.What are title documents and their effects on the operation of international settlement？
3.Fill in the Table 1.2， put a “√” when you think payment is to be made and “×” when payment is not to be made．
Note：
“√” in the 2 nd row means physical goods are delivered by the exporter to the importer while the opposite is marked as“×”．
“√” in the 3 rd row means title documents have reached the importer while the opposite is marked as“×” and “NA” means not applicable．
Table 1.2 Actual Delivery or Constructive Delivery
Situation A： Wang Hua wants to buy one keyboard from an American seller．
Situation B： XYZ Company， Chengdu wants to buy 10 000 sets of keyboards from an American seller．
1.What trading mode is recommended to Wang Hua and XYZ Company，Chengdu respectively？
2.What transportation mode will be appropriate for the commodity to be shipped to Wang Hua and XYZ Company， Chengdu respectively？
3.What payment methods will be appropriate for Wang Hua and XYZ Company， Chengdu to make payment respectively？
Look at the part of a sales contract about payment methods below and consider the following questions：
1.Point out the payment methods used in this sales contract．
2.What are the underlying reasons behind the selection of different payment methods for one trade transaction？
3.What should we fall back on towards the creation of a 100％ risk－free payment method？