Contracting & Payment Terms: Reducing Risk

Contracting & Payment Terms: Reducing Risk

Baklava Academy • Article 40 • Updated guide for importers, retailers, and hospitality brands.

Key takeaways

• Align Incoterms + payment + documents so risk transfer and control are clear.
• Define quality acceptance (specs, COA, inspection rules, claim window) before money moves.
• Use step-based payments to protect both sides: deposit, pre-shipment approval, final release.
• Put “what if” clauses in writing: delays, damaged cartons, temperature exposure, customs holds, force majeure.

1) Start with the contract “spine” (the 12 lines that prevent 80% of disputes)

• Parties + addresses (legal names, tax IDs if applicable)
• Product definition (SKU, ingredients statement reference, net weight, piece count, nut type/grade where relevant)
• Packaging specification (inner tray, outer carton strength, palletization, humidity protection)
• Labeling approval (final artwork sign-off and who owns liability for translations)
• Lot coding + shelf life (production date format, minimum remaining shelf life at dispatch)
• Incoterms + named place (e.g., “FOB Mersin Port” or “DAP Buyer Warehouse, City”)
• Lead time & dispatch window (what triggers “ready” status)
• Documents included (commercial invoice, packing list, COA per lot, etc.)
• Payment terms (when, how, bank charges)
• Inspection & acceptance (who inspects, sampling rules, pass/fail criteria)
• Claims window (e.g., 48–72 hours for visible damage; X days for lab-based claims)
• Dispute resolution (governing law, venue/arbitration language)

2) Payment terms (risk profile by option)

No single “best” term—choose based on trust, order size, and replacement feasibility.

A) T/T (wire transfer) — common and simple

• Deposit + balance before shipment (good for first orders): e.g., 30% deposit / 70% after label + COA approval, before dispatch.
• Deposit + balance against documents: balance paid after seller shares scanned docs (invoice, packing list, AWB/B/L draft).
• Milestone payments for large orders: deposit → packaging procurement → production completion → pre-shipment release.

B) L/C (Letter of Credit) — document-driven risk control

• Useful when order value is high or parties are new.
• Risk shifts to document compliance: if documents meet L/C terms, bank pays.
• Keep it practical: fewer document conditions = fewer “discrepancies.”

C) CAD / D/P (Documents Against Payment) — middle ground

• Buyer pays to receive documents (often via bank). Less complex than L/C.
• Still depends on logistics and bank timelines—best for repeat trade.

D) Open account — highest seller risk

• Usually reserved for established relationships with credit checks and history.

3) Incoterms alignment (avoid “who owns the problem?”)

• EXW: buyer carries most logistics risk early; can be messy for first-time importers.
• FOB/CFR/CIF: common for sea freight; define the named port clearly.
• DAP: seller manages freight to destination point; buyer handles import clearance/duties.
• DDP: seller handles import duties/taxes—only use if seller truly can do this in the buyer’s country.

Tip: Whatever Incoterm you choose, specify insurance responsibility and what evidence is required for a damage claim (photos, carrier report, etc.).

4) Quality & claims: write the rules before the first shipment

• Specification sheet: ingredients, nut ratio range (if used), piece size tolerance, syrup level, sensory notes.
• COA: per lot, with methods/units, and acceptance limits shown.
• Acceptance criteria: what is “pass” vs “commercially acceptable.”
• Claims window: separate visible damage from quality claims.
• Evidence package: photos, carton codes, temperature/humidity indicators (if used), lab results (if applicable).

5) Document control (your leverage point)

Many risk controls are simply: don’t release the wrong documents at the wrong time. Agree in writing on which party provides:

• Commercial invoice + packing list format
• COA (lot-linked)
• Transport documents (AWB/B/L drafts and final copies)
• Any destination-required certificates (buyer should confirm requirements; seller supports issuance where feasible)

Copy/paste: “risk-reducing” contract checklist

• Incoterm + named place is written clearly (Y/N): ___
• Payment milestones and triggers are defined (Y/N): ___
• Packaging spec + label approval step included (Y/N): ___
• Minimum remaining shelf life at dispatch defined (Y/N): ___
• COA per lot required + limits shown (Y/N): ___
• Inspection rules + claim window defined (Y/N): ___
• Damage/temperature exposure evidence requirements defined (Y/N): ___
• Delay and force majeure handling defined (Y/N): ___
• Dispute resolution clause included (Y/N): ___

Related reads: How to Read a COA • Shipping by Air vs. Sea • Customs Clearance Basics