Navigating the Contracting and Sales Process
You have cupped the coffee, you have decided to make a purchase and you have agreed an price. What happens next?
One of the most daunting things working with a new farmer or exporter, is the ability to build up trust between yourself and the producer. The sale is going to be managed remotely and you are unsure how it will all work.
It is OK, We are on hand to help you. This is going to be the start of a long-term relationship for everyone.
We think the easiest way to under the pricing across a range of origins is to work on a FOB basis. The producer will cover the cost of preparing the coffee for export, putting it in to the container and on to a ship. At this point he has covered his reponsibilities and it is over to you.
However how can you be sure everything will go to plan?
Well this comes down to terms of the contract which sets out the responsibilities of both parties. We recommend one of 2 contracting methods. Either of these methods will work for farmers as well. It creates mutual trust and the responsibilities are clear to both sides:
- Letter of Credit (L/C)
- Advance Payment (CAD)
Both of these types of contract offer protection in different ways. The balance for each party is sightly different with each. In some cases one will work better than the other. The producer will be keen to receive payment in a timely fashion. Where as a buyer will be concerned their payments disappears and the coffee doesn’t arrive.
Letter of Credit
Both of these types of contract offer protection in different ways. The balance is sightly different with each. In some cases one will work in a better than the other. The producer will be keen to receive payment in a timely fashion. Where as a buyer will be concerned their payments disappears and the coffee doesn’t arrive.
“I think the possible terms of payment for all of us is LC. he open Lc to our bank using his Taiwanese bank then the coffee shiped acording to detailes in the contract. Then we shipped to he and we recived the payment by providing nessery documents including bill of loding. This is the LC terms of payment in international trade.”
- Pre-shipment samples
- These will be supplied by the producer once the coffee has been through the dry mill and bagged.
- The exporter will provide you with a representative sample of the coffee they are going to send you.
- The representative sample should be taken across a range of the bags being sent to you
- Bill of Loading
- This is to confirm the container has been loaded on to the ship
- Bill of Landing
- This is issued when the container arrives at your designated port.
- At the start of this type of contract the payment is set up at the bank between you.
- Once all the contractual obligations have been completed your payment is released to the producer.
This means you have control over the coffee, the payments and the quality of the coffee being shipped to you. If this is something that works for you, then perhaps this next method of contracting will work for you?
This is similar to Letter of Credit in similar documentation and obligations are present. However the flow of cash is different. In some ways this works well for the buyer as it means there is some control over whether full payment is made at the end of the day. In some ways this can work in a better way with consolidated shipments.
- The buyer will make a 50% advance payment against the contract
- The producer will start the export processing once they have received the payment
- A pre-shipment sample will be sent to the buyer
- A Bill of Loading will be sent to the buyer
- A Bill of Landing will be presented once the container arrives at the buyers designated port
- A period of time will be agreed (7-14 days) for the buyer to sample the coffee upon landing.
- The buyer will make the balancing 50% payment to the farmer
For this process to work, the buyer has be comfortable paying in advance. If you wish the payment can be routed through our accounts and we will send it on to the producer. It gives you confidence the payment will arrive in the right place. It also means you have a hold over the quality of the coffee. It means the producer has make sure the coffee meets the agreed standard before they will receive full payment.