COMMERCIAL TERMS & CONDITIONS

I have seen plenty of sales engineers who think their job is only technical. Is that really so? Definitely not. Say you are reading a detailed Notice Inviting Tender and you mark all clauses containing the words ‘debit’ or ‘credit’ with the remark ‘Accounts’, than you really are living in a fool’s paradise. Commercial terms are an indispensable part of any engineering parcel of any salesperson selling engineering equipment.

CAREFUL STUDY OF TERMS & CONDITIONS

If you ever want to rise up the ladder by your hard work alone and one day manage a team of juniors, you need to be familiar with Managerial Accounts,which is a different subject from financial accounts.

Managerial accounts are those figures and ratios, which your management will study. These are the figures by which the-powers-that-matter, if you head a regional office-the management and if you are the CEO-the stockholder's interests. These are the people you are ultimately responsible to, so ignore them at your own peril.

      What are these commercial terms and what happens if we do not know them..? If I do not know my commercial terms, then I have no business in meeting customers. Not convinced? OK, let us say you are in a electronic appliances store, and you want to buy a laptop,  having already decided the model. As you are satisfied technically, you figure  that you need to know the price. And then you see the price say 280$. You think its a little expensive but never mind, you like it. Then as you open your wallet and start to take out the plastic money, it strikes you that you have no information at all and unless you have some more information, you CAN'T buy it, meaning there's no SALE. Being more precise
"There is no SALE because of the lack of the basic commercial terms"

            But what information that I do not have? What are all these things which I do not know? I have no idea whether the prices are inclusive of taxes and duties. I don't know what other charges are applicable e.g. Packing & Forwarding, Excise Duty, State sale tax, any discounts applicable? I even don't know whether they will accept a cheque or a credit card, etc.( But surely, I can get to know all this information by just asking the staff. Yes, I can do that but selling the laptop is not the issue here. Say, you are at a remote site and you want to place an order fast for some equipment. You have got two quotes, but one has no mention of basic commercial terms.)
        This is the kind of trouble you land your customer in if you omit the commercial terms. Please note that in business lingo, the words’intentional’ and ‘nonintentional’ mean the same. Your forgetting may be a human error but if the  customer suffers a loss because of your messed up quotation, that will not help his career too

The basic Commercial Points that requires a mention are

      (A) Price basis which tells the customer that your prices are quoted ex factory or FOR(this    means Free on Road-it tells the customer that you will bear the transportation expenses) or whatever.

  B) Taxes & Duties: If these are included in the quoted price; what are the rates ; what taxes are being charged etc.

  C) Delivery: How much time will the delivery take. In the laptop case, it will be immediate off  shelf but for customized items, deliveries differ.

      

      D) Payment Terms : 100% against material or through bank or through LC (letter of Credit) or maybe you want a 30% advance payment along with the PO and balance against delivery. We will discuss about this later for delivery and payment are very crucial factors for selling capital equipment.

      E)  Transportation and Transit Insurance : 

      

      F) Validity: Your price is valid till when. Say the customer comes after 6 months, will your price remain the same. Therefore you mention a period 4 weeks, 12 weeks whatever period your prices will be the same and after that subject to renewal.

      These are the main commercial terms. A lot of others are there like P&F costs, warranty, service support, accessories etc. but these are the main. Without one of them your proposal will remain incomplete.

For International trading /selling , we have a set of commercial terms uniform all throughout the world and  which is acceptable and applicable to all nations. These are called INCOTERMS. Every year they are reviewed and revised, if necessary. The picture below will tell you about INCOTERMS .You do not have to be scared of INCOTERMS. They are certainly not rocket science.

That was quite a post.

This point was important however. Anyway, whatever-hope you like it.

Love and best wishes from

    ------------------------

(Someone from Bags-End)

The Chutzpah of "Commercial Terms"

The Chutzpah of "Commercial Terms"

Ask any fresh engineer who wants to make it in Sales & Marketing, his or her 'opinion' on Commercial Terms. And the chances are there that he or she will look wary all of a sudden. A look which without saying anything conveys all the ridicule in the world on your chutzpah. When I first started working, my General Manager (a gentleman indeed) tried to explain it to me. He said "Ok-imagine you are in this restaurant and you want to have some fried chicken, the chicken is the technical part and the bill is the commercial part"! Do you understand? Well I didn't -I thought what's engineering has to do with a chicken tangri kebab. But I said "right sir.. I do" .Mr Ghosh looked skeptical but left it at that.

Today if he asks me I would say " Commercial Terms! It's the all in all of what I do" for a living. (But  unfortunately, it appears that he has gone to never never land-so my repartee will have to wait)

Have you ever come across the word "techno-commercial"? You must have. "Commercial terms" is the commercial part of your proposal, quotation, offer, Tender etc. which is equally important as the technical, if not more so. 

Let us suppose that you have talked in detail with the decision maker and both of you have come to a conclusion that you are going on for a sale. How do you proceed now? You submit a proposal. You start by stating in it the inputs from the customer. Then, you state the discussions i.e. a summary of the system which your customer wants to buy so that the input conditions match (you have already written down the inputs) . You state your price. Is that it? No friends, I'm sorry to say that that's not it.

Your proposal will as effective as a "one-eyed french speaking, laughing hyena" for selling, as there is plenty of information missing. The following are just a few areas of information missing.    

1.     Price basis : The prices that you mentioned are with included transportation costs?
2.     Delivery: You propose to deliver the material in what time period? Immediately.. in 1   month? After three months?
3.   Payment Terms: How do you want your customer to pay you. Do you want an advance? If so can you give a bank guarantee for that amount. How about the rest? Do you want the balance on a C.O.D basis or through Letter of Credit. Etc etc...
4.  What happens in case of delay i.e. You delay the material delivery or the customer delays to pay you.
5.    Validity : Say the customer calls you up or the customer’s purchase department. places the order after a year, can you accept it? Of course not but have you mentioned the validity  of your offer anywhere in your original proposal. Validity should be always mentioned. Some people think that a proposal should be like a telegram, but I always like to be clear in all aspects.

All these points regarding the sale and which you propose to your client to be applied against the sale are called Commercial Terms. Remember, you sell only when you get your money. Say you have sold three high priced machines (total price 10 million Euro) but all of them have inherent credit for a year. Then start hunting for a new job, as you'll get the pink slip, without fail.

Your commercial terms should be so thorough and you should know them like the back of your hand. With one reading, you should know what conditions govern the sale. Your success or failure depends upon commercial comprehension as well. COMMERCIAL TERMS should arouse in you the same interest as the technical system you are selling. If they do not, then either develop it or get the hell out selling, dude!

The commercial terms section is the area where you can use your experience and make your offer the most attractive. Here, there are no guidelines and how you do so depends from case to case and your experience. For high value capital equipment, commercial terms generally vary from client to client.

So we have more or less finished commercial terms, 

See you next time then friends

And till then,

Love

Bilbo