New buyers often confuse incoterms w payment terms. I hope you don’t make the same mistake. Let me explain.
The Incoterms rules or International Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) widely used in international trade to clarify when the transfer of ownership takes place。In other words, Incoterms are used in a sales agreement and define the responsibilities and obligations of both parties and help traders in different countries to understand one another. Incoterms make international trade easier. Such as “FOB” = Free On Board, “CIF”= Cost, Insurance & Freight, to name a few.
Payment term means how and when to pay. For example, 30% deposit + 70% at ship date. While Incoterms may be clear (“FOB Shanghai” for example) in the quote, sometimes the suppliers may not state clearly in their quotation to you about payment terms. You may be in for a rude awakening if you are thinking you can pay your supplier 100% once the goods are on the boat in Shanghai (FOB) but your suppliers wants 50% deposit to even start the order.
To make a long story short, make sure your quotes and PO’s state clearly both the Incoterms and the payment terms.
Written for CSIC by Sophie Mao
China based lawyer at www.AsiaBridgeLaw.com