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Buyer and Supplier agreement in SCM
November 15, 2014
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There are 5 different scenarios when considering buyer and supplier agreement. Usually, in such scenarios, the buyer and the seller belongs to different countries.

These scenarios are as follows:

 

1. EX-Work:

Supplier will give the required stocks to the buyer at his own factory exit.

 

2. Free on board (FOB):

Supplier will place the stocks on the port and from there the buyer has to take care of the stocks.

 

3. Cost & Freighting (C&F):

Supplier in this case is responsible to deliver the stocks on the port of the buyer. All risk and duties till the port will be paid by the supplier.

 

4. Cost insurance & Freight (CIF):

It is similar to the cost and freight (C&F) case, but the supplier will pay for the insurance of the stocks. Huge multinational companies do not go for CIF, because they cover the insurance part by themselves.

 

5. Delivered duty paid (DDP):

The supplier pays everything till the delivery of the product is done to the doors of the buyer.

 

Non Negotiable Documents (NND):

Nonnegotiable documents are the documents required for any shipment to be cleared from the customs. The most important NND documents are as follows:

 

  1. Commercial invoice
  2. Bill of lading
  3. Packing list

 

Methods of Payment for shipments / imports:

For payment of the products that are transported from one country to another are as follows:

  1. Letter of credit (L/C).
  2. Telegraphic transfer (TT)
  3. Bank contract (B/C)

Letter of credit is the safest mode of payment as it is backed up by the state bank of both (Supplier and buyer) country.

 

There are two types of letter of credit which are as follows:

1. Usance: In this type of L/C the buyer pays its supplier within 45 days after receiving the stocks.

2. Sight: is a type of L/C in which the buyer needs to pay the supplier just after receiving all the documentations.

 

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