Skip to main content

Client Question:

I’ve sold CPT by road, some of the goods were lost in transit before the border, and the balance has arrived but is possibly damaged. The Buyer refuses to receive these and refuses to pay me. What is my position?


In any model, the “Seller” is only one of several roles you may take. While the commercial term used by the Seller and Buyer may guide us on the Seller’s position, it will not influence your risks and obligations in respect of your other responsibilities.

Given that the Devil is in the Detail, I can elaborate on some of the positions you need to address, but I am generalizing and there may be other factors at play that I am not aware of (for example, the goods may be hazardous or controlled substances, and ‘loss’ of the product in transit might require more than a commercial consideration).

The Seller: In a properly executed CPT (Carriage Paid To) contract, risks pass to the Buyer once the supply is handed over to the first Carrier in the supply chain. The first Carrier may be any party supplying transport that is not the Seller (a Seller using their own vehicles would not be allowed the protection of CPT but would need to contract on a DAP basis).

Accordingly, in your example, you have acquired the right to be paid on evidence that you handed over the cargo to your Carrier, regardless of whether the goods arrive at your buyer “in sound condition, in the stated quantity or indeed at all”.

A C-prefix assures the Buyer of the dispatch of cargo, not its arrival.

This perhaps highlights the fundamental weakness of commercial terms in ‘the real world’. You have acquired the right to be paid – but what will you do with that right? The Buyer has your money. As a simple rule, C-prefixed Seller’s don’t offer unsecured credit. As you will note, almost all of the challenges discussed below would resolve had you been prepaid or had bank security of payment.

What we can say is that, as the Seller, the loss and potential damages in transit – provided the goods were adequately protected etc – is not your risk and you have the ‘right’ to press for payment.

The Shipper: Having appointed the Carrier and paid the carriage, you are the Carrier’s principal in your role as Shipper.

Any charges which arise in the course of transit (such as, in your example, the inevitable storage accruing at the destination place), the Carrier will first endeavour to recover from the consignee prior to release. However, as your counterparty has abandoned the goods, the liability for the storage charges – and the cost of the eventual return or disposal of the goods – will revert to you as Shipper.

As the Seller, you will have the right of recourse to your Buyer to recover these charges from them in turn, but once more – what will you do with this right?

The commercial term does not bind the Carrier, and as the Shipper you are liable to reimburse the Carrier for all incurred charges – that is until someone steps forward and acts in your stead. As your Buyer refuses to take this role (that of the Consignee) you alone remain liable to the Carrier.

The Insured: As a CPT contract does not obligate either party to insure the goods, cargo insurance need not be in place. However, even if it was in place, as the Buyer has declined to pay and as you have sold on a C-prefix it appears possible that neither party has an insurable interest in the goods anyway. You may have credit insurance allowing you some relief should the buyer default.

The Exporter: You may or may not have exposure in this regard, it depends on what was declared on the export entry, given that some goods were lost before the border.

For example, if 100 objects were dispatched and 10 were lost before the border, the export entry should only report 90 objects as being exported.

If you (or your agent) had pre-cleared 100 units, then a voucher of correction (v.o.c.) would be required to adjust and correct the declaration. This attracts costs, but also penalties under certain conditions – if you think this is an issue, speak with your Clearing Agent and be guided by them.

The Vendor: There are several issues you must address in this role. The primary exposure is that if you are not paid within 90-days of export (or however long the credit period you have granted might be, provided it is documented and does not exceed the Exchange Control boundaries), the supply will become subject to VAT at the standard-rate, notwithstanding that structurally it was a Direct Export, supplied at the zero-rate.

This exposes you to the tax fraction which is approximately 13.05% of the tax invoice value. The tax fraction must be accounted to SARS as a VAT adjustment until such time as the matter is resolved through payment or a bank-approved write-off (in which case you may reverse the VAT adjustment).

The Resident: All exports must be paid in full within 6-months from the date of export (which I read as 180-days from the date of the export customs release), in an Exchange Control compliant manner.

If you believe you might not be paid within that time frame, you have 14-days from the expiry of the 180-day period to write to your bank notifying them of the potential default and explaining the circumstances which gave rise to the position.

Thereafter, you would be guided by your bankers.

You have a legitimate right to press your Buyer for payment on the strength of your commercial term, however, I recommend that while you continue to do this, you simultaneously speak with your clearing agent to ensure your customs paperwork is in order, and to your bankers if you suspect your Buyer may default on you.

Your VAT position and its management will flow from your Exchange Control position.

As you can see from the above catalogue, the Seller’s ‘low risk’ commercial term is misleading. CPT is a low-risk term for the Seller alone, but the Seller is never alone.

You make a profit because you take risks – your profit would hopefully be commensurate with the risks you take, but you cannot look at risk with only your Seller’s ‘hat’ on.

Your current file illustrates how minimizing the risk in one role does not mean that you have achieved the same in your other roles and aligning your various responsibilities is crucial to your overall Risk Management.

Source: Freight Training