THE PAYMENT TERM OF 90 DAYS AFTER THE ARRIVAL DATE

FCIB’S QUERY RELAYED BY KIM CHRISTENSEN TO LCM TRADE SERVICE UPDATES’ COUNTRY CORRESPONDENTS FOR COMMENTS

Dear FCIB Members:

A fellow member has a question regarding Payment Terms – Automotive Aftermarket Industry.

I am interested if there is a "best practice" for determining payment terms, specifically to vendors in China. If terms are FOB China; 90 day terms. (I realize this is an import)

Specifically, when do you as a buyer calculate the payment date?

A. 90 days after the FOB China date?
B. 90 days after the Arrival Date?

Is there a best practice in determining the due date?

Even if you are not in the automotive industry, I would be interested in how any company makes this determination.

Thanks

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COMMENT FROM MR. OLD MAN

Dear all,

In international trade the seller and the buyer would agree to either of the following types of calculation of maturity date :

(a) xx days after shipment date, e.g., 90 days after shipment date
(b) xx days after sight, e.g., 90 days after sight

The term “90 days after arrival date” is not a common practice in international trade. An experienced seller would not accept this term as he will not receive the payment if the goods are lost in transit or do not arrive at the destination.

Best regards,
Nguyen Huu Duc

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COMMENT FROM SON CHEE SENG

Hi All,

It is not a matter of best practice when the buyer and seller decide on the trade term. It depends on the term whether it best suits their interest and purpose. If a buyer in Europe wishes to contract for a carrier himself, he should choose either FCA, FAS or FOB term. He should also cover cargo insurance himself. As for the tenor, 90 days if agreed, seller would only accept the payment to be effected 90 days after shipment date (on board date if shipment is effected by sea). The reason is obvious, the carrier is nominated by the buyer and, the risks of loss of or damage to the goods are transferred from the seller to the buyer when the seller has fulfilled his obligation to deliver the goods. Under FOB term, seller has fulfilled his obligation to deliver the goods once the goods pass the ship's rail. Buyer bears the risk of loss of or damage to the goods and it is his problem if he fails to cover marine insurance for the whole carriage.

If the payment term is 90 days after the arrival date, the seller would not accept it. If the vessel is sunk during the journey, the seller will not be able to receive payment as the due date for payment will not be able to determine. Buyer may take this as an opportunity to refuse payment if he fails to cover cargo insurance. I don't see any good reason for the Chinese seller to agree with the payment term of 90 days after the arrival date.

Best Regards,
Chee Seng …