Terms of Sale - The Strategic CFO® (2024)

• Tags:buyer, sale, seller, term of sale
• By: Dan
• July 24, 2013

See Also:
Net 30 Credit Terms
Net Sales
Credit Sales
Daily Sales Outstanding (DSO)
Commercial Risk

Terms of Sale Definition

Terms of saledefinition isthe terms which a buyer and seller agree upon. They are as important in exporting as they are with domestic sales. Terms of sale serve the purpose of creating uniform expectations between buyers and sellers. In this way, terms of sale help each party to avoid disagreements which cancel the sale or cause legal liability.

Terms of Sale Explanation

Terms of sale, explained also as the cost, amount, and distribution terms regarding a sale, are essential to a fair deal. They explain, in detail, the exact agreement for a sale: cost, amount, delivery, payment method, payment timing, trade credit, credit terms, and more. They are also essential because they allow each party in a transaction to leave satisfied.
Terms of sale become more important when importing or exporting goods. Here, the terms of sale (incoterms) explain how and when shipping occurs, who pays international duties and taxes, and other factors established by international chamber of commerce regulations. This allows discrepancies to be avoided and properly processed, preventing lawsuits and even international incidents.

Terms of Sale Example

Sophia imports and exports goods to China. She has a hard job; making sure deals are succinct, products are delivered, governments are appeased, and customers are satisfied. She deals closely with terms of sale; 2 10 net 30, delivery paid for by the seller, and she covers the duties.
On a recent shipment of consumer products she is reviewing the terms of sale agreement. This tells her all of the important information regarding the purchase. She makes sure to read the fine print.
In this document she finds a typo which makes the terms unclear. Rather than accepting this she contacts the seller. Sophia knows better than to let this problem go without fixing. Sophia finds, through this, that she and the delivering company have different expectations. Luckily she found this now, so she begins renegotiation. She is able to recover a better deal than she was originally presented with. All of this because she checked the terms of sale international shipping document.
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