Foreign Trade Terms

1. CONTRACT OF SALE
It is an agreement by which the ownership of goods is transferred from a seller to a buyer.

Before the contract is signed the buyer and the seller should make decisions about:
1.Quality
2.Quantity
3.Price
4.Packing and transport
5.Delivery
6.Payment

2. THE GOODS
1.Chosen
1.By description
2.By sample
3.By trade mark
4.On approval
2.Quantified
1.By number
2.By weight
3. Quoted in price
     1. Unit price
     2. Total price
4. Packed and carried
     1. By sea
     2. By road
     3. By rail
     4. By air
     5. By combined transport
5. Delivered at the place and at the time agreed with a delivery time:
     1. Immediate
     2. Prompt
     3. On term
6. Paid according term and methods decided on the basis of international financial trends and on the relationshipbetween buyer and seller


 The INTERNATIONAL COMMERCIAL TERMS are a codified set of international trade terms published by the International Chamber of Commerce (ICC) and widely used in international commercial transactions.
They exactly define the responsabilities, costs, risks and obbligation of sellers and buyers in international transactions.
The latest version of the Incoterms was made by ICC in 2010 and it is operative since 1° January 2011.
The Incoterms are divided in 2 categories:

      1.Terms for any mode of transport

      2.Terms for sea and inland waterway transport

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E - TERMS : 
EXW (Ex Works) + named place

The buyers  bears all costs and risks. The seller has to make the goods available at his
premises.

F - TERMS

1. FAS (Free Alongside Ship) + named port of shipment

The good are to be placed alongside the vessel at the port of shipment. The buyer is 
responsible for everything from that moment, also clearing the goods for export.

2. FCA (Free carrier) + named place

The seller must give the goods, cleared for export, to the carrier named by the buyer at 
the named place.

3. FOB (Free on Board) + named port of shipment

The seller put the goods on the ship board, cleared for export. The buyer is responsible 
starting from that moment.

C - TERMS

1. CPT (Carriage Paid To) + named place of destination

The seller pays the freight for the carriage of goods to the named destination, after 
clearing them for export. The risk of loss or damage to the goods is of the buyer.

2.CIP (Carriage and Insurance Paid To) + named place of destination

The seller has the same responsibilities of CPT but he pays also the insurance against the 
buyer’s risk of loss or damage of the goods during carriage

3.CFR (Cost and Freight) + named port of destination

The seller pays the costs and fright required to bring the goods to the named port of 
destination. The risks are of the buyer when the goods pass over the ship’s rail at the port 
of shipment.

4. CIF (Cost Insurance and Freight) + named port of destination

The seller has the same obligation as under CFR but he has also to provide insurance 
against the buyer’s risk during transit.

D - TERMS

1. DAT (Delivered at Terminal) + named terminal at the named port or place of 

destination

The seller pays freight and insurance to the named terminal, after clearing the goods for 
export. The risks are transferred from the seller to the buyer after the arrival at the 
terminal. The buyer is responsible of clearing the goods for import.

2.DAP (Delivered at Place) + named place of destination

The seller pays freight and insurance to the named place of destination. The goods are at 
the disposal of the buyer before unloading. The buyer should clear the goods for import.

3. DDP (Delivered Duty Paid) + named place of destination

The seller delivers the goods to the named place in the country of importation. The seller 
is responsible for cost and risks, including customs formalities.

PAYMENT TERMS

OPEN ACCOUNT

Goods are shipped and documents are remitted directly to the buyer with a request for 

payment at the appropriate time (immediately or at an agreed future time after the 

receipt of goods). Then a statement of account will be sent to the customer, showing all 

the transactions that have taken place during a fixed period of time and the amount owed 

at the end of the period. RELIABLE CUSTOMERS

BANK TRANSFER

It is the transference of money from the account of the importer to the account of the

exporter, in accordance with the perms of payment agreed.  In terms of banking charges 

it is the cheapest form of payment. RELIABLE CUSTOMERS

CLEAN BILL COLLECTION

The payment is made through a Bill of Exchange (also called draft), a document prepared 

by the exporter and sent to the importer. The importer has to pay the sum of money 

stated in the document on demand or at a fixed future date. First the exporter sends to 

the importer the bill of exchange to be accepted. When he receives it back, he sends the 

goods and passes the bill of exchange to his bank. The exporter’s  bank sends the bill of 

exchange to the importer’s bank, where it is paid either on sight or at term.

DOCUMENTARY COLLETION

A Bill of Exchange is passed between the banks of the importer and the exporter together 

with the relevant shipping documents (commercial invoice, Bill of Lading and insurance 

policy, eventually also other documents)

The exporter’s bank sends the Bill of Exchange and the documents to the importer’s bank, 

which gives them to the importer either after the payment (Documents against payment) 

or after the acceptance of the draft (Documents against acceptance) The importer’s bank 

sends the acceptance or the money to the exporter’s bank, which gives them to the 

exporter. In this moment the importer can collect the goods.

DOCUMENTARY CREDIT (or LETTER OF CREDIT)

A Letter of Credit is a letter by which a bank guarantees to pay the exporter in the event 

that the importer is unable to pay for the purchase. It specifies all the terms involved in 

the transaction and it has an expiration date.

Documentary credit is the safest method of payment as it guarantees both the seller and 

the buyer. It is usually required by the exporter when he doesn’t trust the buyer. It is by 

far the most expensive because of the involvement of the banks.

PAYMENT IN ADVANCE

Payment is expected by the exporter in full before the goods are shipped. It is used only 

in special circumstances.

For small orders or for orders from new customers, 2 methods can be used

1. Cash with order (the buyer pays when the order is placed)

2. Cash on delivery (the goods are released to the buyer after the payment)

ENQUIRES

They are written to:

1.  Get general infos about an article, firm or services

2.   Receive a catalogue, price list, samples, a quotation

3. Ask about availability of the goods

4. Request special terms of sale, delivery, payment

5.  Ask for a demonstration of how a machine work

6. Request a visit from a representative

They can be made:

1.  With a formal written letter

2. Using a e-enquiring form

3. Sending a full letter

4. By email

5. By fax

6. By post

7. By telephone

REPLIES TO ENQUIRES

Written replies to enquires may be:

1. A letter of aknowledgment with informative material

2.  A negative reply with a counteroffer

3.  A quotation (usually sent by fax or email)

4. A complete offer