Analyze typical features of quotation letters

In your reply to an enquiry, you may want to give your prospective customera
quotation. A letter of quotation is any letter written in reference to the price of a
service or product. This could range from a customer or client requesting or accepting
a quote, to the supplier or service provider sending the quote amount. Either of these
letters could be headed as a letter of quotation. Quotation letters cover some following
subjects:

First of all, price is an indispensable element in any quotation letters. “When a

manufacturer, wholesaler, or retailer quotes a price, he may or may not include other
costs such as transport, insurance, and purchase tax (e.g.VAT or value add taxes in the
UK). Prices which include these extra costs are known as gross price; those which
exclude them are known as net price” (Business Correspondence). As an illustration,
when we say “The net price of this product is $100,000 to which must be added VAT
at 20%, making a gross price of $120.000”, it means that the gross price of this
product will be included 20% of VAT, and the net price is only $100,000; or “We can
quote you a gross price, inclusive of delivery charges, of £47.5 per 100 items. These
goods are exempt from VAT” – in this point, the gross price includes only delivery
charges, not VAT.

A quotation is not necessarily legally binding, that is, the company doesn’t have
to sell you the goods at the price quoted in the reply to an enquiry.However, when
prices are unstable, the supplier will say in their quotation that their prices are likely to
change. If the company makes a firm offer, they will hold the goods for a certain time
until you order. However, although it is not legally binding, suppliers often keep to
firm offers to protect their reputation. For instance, they can add a provision like “We
can offer you a price of £7.5 per item, firm 24 days, after which the price will be
subject to an increase of 5%”. In that point, if you order within 24 days as scheduled,
you can buy with a price of £7.5 per item, if not, the price will be increased 5%.
Moreover, whenever possible you should quote prices in your customer’s currency,
allowing for exchange fluctuations. To illustrate, we can say “We can quote you a
price of 200,000 euro per 100 units, though I regret that, because of fluctuating
exchange rates, we can hold this price for 5 weeks from today’s date”.
 Secondly, Transport and insurance costs. There are a number of abbreviations
referring which price is being quoted to the customer.These are established by the
International Chamber of Commerce (ICC) and are called incoterms. “They are
revised regularly, and additional terms may be added, e.g.the phrase CIF Naples
Incoterms 2000 landed means that a consignment is covered under an incoterm CIF
(cost, insurance, freight) set in 2000, up to the time it is landed in Naples”.(According
to Oxford Handbook of Commercial Correspondence)

The main Incoterms are divided in four groups, which are named after the first
letter in the term. Firstly, Group C – Main carriage paid. It includes: CFR, CIF, CPT
and CIP with some significant features. Particularly, CFR (Cost and Freight) named
port of the destination. In this point, delivery has occurred when the goods are on the
ship at the port of shipment. The seller pays the costs listed and freight charges to a
named destination. She provides the buyer with all the transport documentation
showing freight paid. The goods are transit risks become the buyer’s when the goods
have gone over the ship’s rail at the port of shipment. CIF (Cost, Insurance and
Freight) - named port of destination. The delivery is similar to CFR and the risks are
the same, but the exporter pays cargo insurance. CFR and CIF can only be used for sea
and inland waterways. Another type is CPT (Carriage Paid To) - named place of
destination. Delivery happens when goods are given to the carrier (if more than one,
the first carrier, or a freight forwarder). The seller pays the costs of delivery to the
named place and the buyer’s risks start from there. Finally, CIP (Carriage and
Insurance Paid) - named place of destination. The delivery occurs as in CPT with the
buyer’s risks being the same. The only change is the exporter pays the costs of cargo
insurance. (Source: Business Correspondence book)

Another one is group D – Arrival, in which the seller carries all the costs and risks
to get the goods to a named destination. Group D has 5 typically types: DAF, DES,
DEQ, DDU and DDP. DAF (Delivered at Frontier) is that delivery happens when the
buyer gets the goods as a named place on the frontier, cleared for export, but not for
import. The buyer assumes all risks from here. The exporter pays all the costs but not
unloading or import clearing charges. In terms of DES (Delivered Ex Ship), the
delivery happens when buyer gets goods at named port. He then assumes all risks, but
the exporter pays all costs except for uploading or import clearing charges. DEQ
(Delivered Ex Quay – Duty Paid) is quite similar to DEQ, but it happens when the
buyer gets the goods on his/her quay (dock) and assumes all risks from that point. The
seller pays all charges including import and customs clearance costs. Both of types can
only be used for sea and inland waterways. Regarding DDU (Delivered Duty Unpaid),
delivery takes place when buyer gets the goods at the named place in the importing
country and takes all the risks thereafter. The seller pays all costs to this point, but not
duties and taxes. Lastly, it is DDP (Delivered Duty Paid). The delivery happens as in
DDU with the buyer taking the same risks. The seller pays all costs to this point
including taxes and duties. (Source: Business Correspondence book)

Furthermore, Group E – Departure with Ex-Works (EXW).Seller packs and

prepares goods for dispatch with delivery taking place at his/her factory or warehouse.
The buyer now takes all transit risks. (Source: Business Correspondence book)

Last but not least, Group F – (Main carriage unpaid) with FCA (Free Carrier)
named place (where the carrier pick up the goods), and FAS (Free Alongside Ship)
with port of shipment named (where the goods are leaving from). Delivery of FCA
occurs when the seller gives the goods to the carrier (airline, shipping company, or
freight forwarder) named by the buyer. The seller will pay all the costs, including
export formalities and licenses and the buyer takes the risks for the goods and
transit.This term is used for any type or combination of types of transport. In terms of
FAS, the delivery occurs alongside the ship named by the buyer at the named port of
shipment. The buyer has the expense of loading. The seller pays costs up to and
including delivery longside the ship, including all documentation. The goods and
transit risks are the buyer's then the goods are delivered within the period stated in the
contract of sale. This term is only used for sea and inland waterways as canals.
Besides, there is also FOB (Free on Board) named port of shipment named (e.g. where
the goods are leaving from). The delivery takes place when goods are on board the
named ship at the buyer's named port. The seller pays all costs of loading. The buyer's
risks for the goods and transit begin once the goods have been put over the ship's rail.
The term is only used for sea and inland waterways. (Source: Business
Correspondence book)
 Thirdly, discounts also play an important part in quotation letter. Manufacturers
and wholesalers sometimes allow discounts to be deducted from the net or gross price.
These are many different kinds, for example a trade discount to sellers in similar
trades; or a quantity discount for orders over a certain amount; a cash discount if
payment is made within a certain time, e.g. seven days, or a loyalty discount when
firms have a long association. For example, in the sentence “We allow a 5% discount
for payment within one month”, the seller offer a discount if payment is made within a
certain time (1 month), or “The net price of this model is £9.50 and we will give 15%
discount for quantities over 100”- the seller give a quantity discount for orders over a
certain amount in this case (15% for over 100).

In addition, methods of payment is very necessary.When you quote the terms, you
may require any of several methods of payment (letter of credit, bill of exchange, etc.).
This will make the payment in accordance with your conditions, at the same time
control the payment process. For instance, when you receive a letter with sentence “On
receipt of a cheque for the amount quoted, we will send the article by registered mail”,
it means that the seller want you to pay by cheque.

Quoting delivery date is another subject in quotation letter. If the enquiry specifies
a delivery date, confirm that it can be met, or if not, you have to suggest an alternative
one. You don’t need to make a promise that you cannot keep; it will give you a bad
reputation, and if a delivery time is a condition of ordering, the customer could sue
you if you break the contract, or reject the goods. For example: “we are pleased to say
that we can deliver by November 26th for the Thanksgiving rush”- the delivery date
will be November 26th, or “We will ship these shoes for you immediately we receive
your order” – that is, the delivery date is right after receiving order.

Besides, there remain fixed terms and negotiable terms. According to the Business
Correspondence book, it is possible to quote terms in two ways: by stating your price
and discounts with no room for negotiation, or suggesting that the customer could
write again and discuss them.For example, we have sentence “All list prices are quoted
f.o.b. Southampton and are subject to a 25% trade discount with payment by letter of
credit” or “The prices quoted are ex-works, but we can arrange freight and insurance if
required, and unless otherwise stated, payment is to be made by 60-day bill of
exchange, documents against acceptance”. In thesse two examples, the companies
make firm quotes, indicating that methods of payment and discounts are fixed.
(Examples from Business Correspondence)

Another way for negotiable term is using the adverbs “normally” and “usually” to
soften the tone of the statements to indicate that although the firm prefers certain
terms, these can at least be discussed. For example: “We usually offer an 18% trade
discount on prices, and would prefer payment by irrevocable letter of credit”.
Furthermore, the supplier even asks 'if this arrangement is satisfactory', like this
sentence “Normally we allow a 23% trade discount off net prices with payment on
documents against payment basis. Please let us know if this arrangement is
satisfactory” ( Examples from Business Correspondence book)

Last but not least, we certainly have to give an estimate in quotation. Companies
which are asked to estimate for a particular job of work may include for the estimate in
tabulated form in a letter.More often, however, they will send their official estimate
form with a covering letter. We can refer to some of the following examples “ As you
know, our representative has visited your factory to discuss the extension which you
wish to add to it, and I now have pleasure in enclosing our official estimate” or “The
enclosed estimate covers labor and parts and carries a six-month guarantee on all work
completed.” ( Examples from Business Correspondence book)