48 3 Reduction of External Funding Needs
According to a traditional contract law rule, the seller is not required to hand
over the goods to the buyer until the buyer has paid the price in full (cash against
delivery, the Zug-um-Zug principle).
The same principle can be found in the CISG: “If the buyer is not bound to pay the price at
any other specific time, he must pay it when the seller places either the goods or documents
controlling their disposition at the buyer's disposal in accordance with the contract and this
Convention. The seller may make such payment a condition for handing over the goods or
documents.”^107
The firm would usually not rely on legal background rules. The firm prefers to
regulate payment terms in the contract document or in the order confirmation. If
the parties have not agreed on the payment date otherwise, the firm can usually
determine it in the invoice, provided that the payment terms are not unreason-
able.^108
Agreed payment terms. There are many ways to agree on payment terms and a
wide range of payment terms. (a) The purchase price may be payable in advance,
on delivery, or after delivery. Sometimes one or more parties must provide ade-
quate security. (b) The customer may be asked to pay on a certain date or within a
certain number of days after delivery, data of invoice or another date. The firm
may demand payment of the purchase price in advance or extend credit after pro-
vision of what the firm considers to be adequate security. (c) There can be an ex-
press payment term in the sales contract. Alternatively, the firm can ask the cus-
tomer to pay the amount shown on the invoice within the payment period shown
on the order confirmation. The payment term can also be found on the invoice. For
example, the firm may ask the customer to pay within a certain number of days af-
ter date of invoice. (d) Payment can be supported by usual commercial terms of
documentary credit such as irrevocable letters of credit, cash against documents or
cash against delivery.
Payment practices, choice of payment term. How will the firm choose the pay-
ment term? The choice of payment term depends on the transaction, the country,
the customer, and the prefences of the firm. For example, business practices in the
customer’s home country are bound to influence the payment term: if the payment
becomes due earlier than is regarded as customary in the buyer’s country or earlier
than the buyer would accept, there is an increased risk of default.
European payment practices depend to a very large extent on the country and
the type of customer:
- Small customers that are in a weaker bargaining position can be made to pay
faster than large firms that are regular customers. - Standard payment periods are shorter in the Nordic countries than in southern
Europe.
(^107) CISG Article 58(1).
(^108) Compare CISG Articles 58, 55 and 7.