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Incoterms & Payment

Trade terms decide who pays for what and who carries the risk. Payment terms decide how much you can lose. Both are explained here.

01EXW vs FOB vs DDP: Which Incoterm to Use When Buying from ChinaFor most buyers importing from China, FOB is the best default: the supplier delivers the goods onto the vessel at a Chinese port and pays export clearance, and you control the main freight and insurance. EXW looks cheapest but pushes Chinese export formalities onto you. DDP is the simplest for beginners because the seller delivers duty-paid to your door, but the freight and duty margin is hidden in the price.3 min read
02CIF vs FOB: Which Is Better When Importing from China?Under both CIF and FOB, risk passes to you when the goods are loaded on board the vessel in China. The difference is cost and control: with FOB you book and pay the ocean freight and insurance; with CIF the supplier does, and must insure only to the minimum Institute Cargo Clauses (C) level. For most importers FOB is better because you control the forwarder, freight rate and destination charges. CIF can suit small or occasional shipments if you check destination costs first.5 min read
03How to Pay Chinese Suppliers Safely: T/T, L/C, Trade Assurance and MoreMost importers pay Chinese suppliers by T/T bank transfer, usually a deposit (commonly 30%) when the order is placed and the balance after a pre-shipment inspection or against shipping documents. For first orders on Alibaba.com, paying through Trade Assurance adds a refund route. Letters of credit suit large orders with new suppliers. Whatever the method, pay only to a company account whose name matches your contract, and confirm any change of bank details by phone.7 min read

Key terms

CFR: An Incoterm for sea and inland waterway shipments under which the seller pays freight to the named destination port, while risk passes to the buyer once the goods are on board at the port of shipment.
CIF: An Incoterm for sea shipments under which the seller pays freight and minimum insurance to the named destination port, while risk passes to the buyer once the goods are on board in the origin port.
CIP: An Incoterm for any mode of transport under which the seller pays carriage and cargo insurance to a named destination, while risk passes to the buyer when the goods are handed to the first carrier.
CPT: An Incoterm for any mode of transport under which the seller pays carriage to a named destination, while risk passes to the buyer when the goods are handed to the first carrier.
DAP: An Incoterm for any mode of transport under which the seller bears the cost and risk of delivering the goods to a named destination, ready for unloading, while the buyer handles import clearance and duties.
DDP: An Incoterm under which the seller delivers goods to the buyer's named address, cleared for import with duties and taxes paid; the seller carries all costs and risk until delivery.
Deposit and balance: The common China payment structure in which the buyer pays a deposit (often 30%) to start production and the balance (often 70%) before shipment or against shipping documents.
Documents against payment: A documentary collection under the ICC Uniform Rules for Collections (URC 522) in which the buyer's bank releases the shipping documents, including the bill of lading, only when the buyer pays.
EXW: An Incoterm under which the seller only makes goods available at its own premises; the buyer handles loading, export clearance, freight and all later costs and risks.
FCA: An Incoterm for any mode of transport under which the seller clears goods for export and hands them to the carrier nominated by the buyer at a named place, where risk passes to the buyer.
FOB: An Incoterm under which the seller clears goods for export and loads them on board the vessel at a named port; risk and main freight cost pass to the buyer once the goods are on board.
Incoterms: A set of eleven standard trade terms published by the International Chamber of Commerce that define which party pays for each part of a shipment and where risk transfers.
Letter of Credit: A bank's written commitment to pay a seller once they present shipping and other documents that comply exactly with the terms of the credit, usually issued subject to the ICC's UCP 600 rules.
Proforma invoice: A preliminary invoice the supplier issues before production or shipment, setting out goods, prices, payment terms and bank details, used to confirm the order and pay the deposit.
Purchase order: The buyer's formal written order to a supplier stating products, specifications, quantities, prices, Incoterm, payment terms and delivery date, which becomes binding once the supplier accepts it.
T/T (Telegraphic Transfer): An international bank wire, usually sent over SWIFT, and the most common way importers pay Chinese suppliers for production orders.