Correct Payment

No two contracts are necessarily identical, and it behoves all concerned to follow carefully basic safeguards and to avoid documentary shortcuts. It is also important not to confuse these INCOTERMS (FOB etc) which relate to the contract between the Seller and Buyer of goods, with the shipping terms FIO, Free In etc which describe the division of responsibility and costs between a Charterer and a Shipowner. A Seller will not wish to release his property until he is assured that the correct payment will be safely received by the time of this release. Equally, a Buyer will be reluctant to pay for goods which have not been safely received and/or have not been confirmed as being in the condition described in the contract. Furthermore, the transaction will perhaps be complicated by Seller and Buyer being located thousands of miles away from each other, with the goods perhaps being located far away from either party. The transfer of goods and money must obviously take place at a time and in a manner which ensures that both parties are satisfied their contract has been properly honoured. There are various ways of achieving this objective, depending on market forces (i.e. on the pressure or otherwise for a Seller or a Buyer to trade) and on degrees of trust between the parties concerned. The simplest means of all, is for a Buyer to pay in advance for goods – e.g. cash with order. The opposite case is where goods and their documents are despatched, the Seller awaiting payment against his invoice. Where either Seller or Buyer are thus exposed, however, they suffer loss of cash-flow in that funds are tied up awaiting finalisation of trading arrangements. For this reason alone, these payment methods are unpopular, quite apart from the risks involved.