Is a quote a binding contract?

[scm5436]

If someone asks for a quote, and I send them a quote (with no terms & conditions) saying "valid for 30 days" does that then lock me in to the sale?

Or is it just a quote, and if they come back in 20 days and say "yeah, we'll take it" I can say "sorry, we've changed our mind, we don't want to sell to you"?

It's just someone wants us to quote in Euros and have specifically requested the price be valid for 30 days. That's ok with us, I'm not intending to screw them on the price later or anything. But with the whole mess with the Euro and Greece at the moment I'm worried that if anything drastic happened and there was a large currency swing we could take a large loss on the order if we were legally obliged to proceed.

So I need to know if I quote them do I have to complete the order if everything went pear shaped? If so, can I add any terms & conditions to say "if the euro moves against the pound by more than x% then the quote is no longer valid"? And if not - ie. if a quote is not leagally binding - then really what is the point of ever putting "valid for 30 days" on it?

 

[MikeJ]

Yes, it's based on offer and acceptance. You have the right to withdraw that offer, but if you don't do so before they accept, then you're in contract.

You can include a clause making it subject to currency fluctuations, but you'd be better having that clause prepared by a legal mind.

 

[Business News]

A common practice on international trade quotes in a non domestic currecy is to set limits for fluctuation. So just add a phrase 'subject to the exchange rate (from whichever authority) not falling to under £X for Euro1' then you are covered irrespective of the offer period.

 

[OldWelshGuy]

Simply mark the letter as 'this is a quotation for costing purposes and not an offer of contract' and you have covered yourself

 

[MikeJ]

FWIW, it's around 1.15 at present, and hasn't been above 1.2 or below 1.1 in the last 12 months. That's a fluctation of less than 5%. While that may be unpleasant, if you're working at lower margins than that, you're probably in the wrong business.

It does depend on your payment terms though. If they place an order tomorrow, when do you get paid? We sometimes wait for US dollar payments for 6 months or more, but we tend to be 30-50% gross margin, so can take a currency hit if we have to.

Also, have you checked what you'll lose in being paid in Euros? The bank could take a couple of percent.

 

[Merchant UK]

Simply mark the letter as 'this is a quotation for costing purposes and not an offer of contract' and you have covered yourself

SO simple, Yet effective, Super advice

 

[Business News]

It does depend on your payment terms though. If they place an order tomorrow, when do you get paid? We sometimes wait for US dollar payments for 6 months or more, but we tend to be 30-50% gross margin, so can take a currency hit if we have to.

I'm assuming when you say you can wait up to six months for US$ payments these are for sales not necessarily to the US as sales in the US have, normally, some of the shortest payment terms of anywhere. You may want to look into sales against a letter of credit with the option for a carrot with a 5% discount. It is common practice in Germany and the Netherlands to offer a discount for immediate or very short terms and letters of credit are common practice for foreign general and commodities trading. That way you wouldn't need to concern yourself with currency swings a few months after sale, bad debt rearing its ugly head and your cash flow would be feeling healthier.

 

[MikeJ]

Yes, they're Middle East orders. We trade in dollars with the gulf countries.

Cash flow's not an issue for us, we've got a cash reserve of about 30% of turnover. We've handled LOCs before, but generally the values involved (10-20k) make the paperwork a pain. We sell a consumable, so generally people come back for more. I think we've had three or four bad debts in 11 years of trading, two of which were in the UK.

 

[Chris Ashdown]

I don't believe that a quote is a binding contract just a offer to buy at that price, the buyer then comes back and offers to buy at the agreed price, its when the seller agrees to sell that the contract is made not at the quote

Stands back waiting to be shot down

 

[MikeJ]

Yes, I think we're answering the question the OP meant to ask, not what he actually asked.

 

[scm5436]

FWIW, it's around 1.15 at present, and hasn't been above 1.2 or below 1.1 in the last 12 months. That's a fluctation of less than 5%. While that may be unpleasant, if you're working at lower margins than that, you're probably in the wrong business.

It does depend on your payment terms though. If they place an order tomorrow, when do you get paid? We sometimes wait for US dollar payments for 6 months or more, but we tend to be 30-50% gross margin, so can take a currency hit if we have to.

Also, have you checked what you'll lose in being paid in Euros? The bank could take a couple of percent.

Sure, I don't care about such minor fluctuations - my concern was if everything went completely tits up. eg. Greece went into a disorderly default, banks started needing bailing out, Spain and Italy got into trouble an the whole thing started unravelling big time - or whatever.

There's a kind of general assumption (or maybe just hope?) that the EU will eventually agree to something and that the whole sorry mess will get sorted out over time by drip feeding defaults and bailouts. But the markets sometimes run ahead of slow moving governments and it all just goes pear shaped (2008...) - it would be bad business not to consider and possibly mitigate for such events.

Just consider the EU and Greece - for ages the EU has been saying there will be NO default and Greece will NOT be leaving the EU. Then there was the 'restructuring' a short while back where a bunch of the lenders took a hair cut, and now they're openly talking about a 50% default. Though of course was kind of obvious to everyone that they would default, but it just shows that the EU doesn't really have a clue how it's all going to end.

Payment terms were 'in advance'. It's all become a moot point however, as they have now agreed to us requoting in GBP. But still useful to know for future. Thanks everyone.

 

[deadpixel]

I think oldwelshguy is on the money

 

[IANL]

I don't believe that a quote is a binding contract just a offer to buy at that price, the buyer then comes back and offers to buy at the agreed price, its when the seller agrees to sell that the contract is made not at the quote

Stands back waiting to be shot down

I am not a lawyer

As I understand it a quote, unless you state otherwise, is an offer to supply and if your customer accepts it then a contract is formed and binding on both parties. That's why some people use the word estimate.

You could also use

"This quote is not an offer to supply but an invitation to treat"
"This quote is not binding until we accept your order in writing"

These are phrases that will help ensure you are not trapped.

I have also seen E&OE but not sure if it has a legal standing.

From Google

"E&OE is a British acronym that stands for "Errors and Omissions Excepted". E&OE is a legal disclaimer that notifies the reader that, without prejudice, that the content and/or validity of the subject data may change without notice"