Order Penalty

Order Penalty refers to the agreed compensation paid by one party to the other in a foreign trade contract for failing to perform or fully perform order obligations (such as canceling an order, delaying delivery, rejecting goods, etc.). Usage scenarios include: the buyer unilaterally cancels a confirmed order, the seller delays delivery or delivers insufficient quantity, the buyer rejects goods without justified reason, etc. Notes: The penalty ratio is usually 5%-30% of the total order amount and must be clearly stipulated in the contract; if too high, it may be reduced by a court. A distinction should be made between a penalty and a deposit (the deposit applies the double refund rule) and damages (actual loss must be proven). Unlike a termination fee, a penalty focuses on both punishment and compensation, while a termination fee is only used to terminate the contract. Foreign trade practitioners should ensure that penalty clauses comply with the United Nations Convention on Contracts for the International Sale of Goods and applicable domestic law, and should retain evidence of breach.