The seven Incoterms® 2020 rules for any mode(s) of transport are:
EXW – Ex Works (insert place of delivery)
FCA – Free Carrier (Insert named place of delivery)
CPT – Carriage Paid to (insert place of destination)
CIP – Carriage and Insurance Paid To (insert place of destination)
DAP – Delivered at Place (insert named place of destination) DPU – Delivered at Place Unloaded (insert of place of destination)
DDP – Delivered Duty Paid (Insert place of destination).
The four Incoterms® 2020 rules for Sea and Inland Waterway Transport are: FAS – Free Alongside Ship (insert name of port of loading)
FOB – Free on Board (insert named port of loading)
CFR – Cost and Freight (insert named port of destination)
CIF – Cost Insurance and Freight (insert named port of destination)
1️⃣ Sales Agreement – Buyer & Seller agree on contract terms and choose to use an L/C for payment security.
2️⃣ Buyer Applies for L/C – Buyer requests their issuing bank to open an L/C in favor of the seller.
3️⃣ Issuance – Issuing bank drafts and issues the L/C, forwarding it to the seller’s advising bank.
4️⃣ Notification – Advising bank notifies the seller that an L/C has been issued on their behalf.
5️⃣ Shipment of Goods – Seller ships cargo according to the agreed terms and L/C conditions.
6️⃣ Presentation of Documents – Seller provides all required trade documents (Bill of Lading, Commercial Invoice, Certificate of Origin, Inspection Certificates, etc.) to the advising bank.
7️⃣ Verification – Both advising and issuing banks verify compliance with the L/C’s terms and conditions.
8️⃣ Payment to Seller – Upon successful verification, the issuing bank authorizes payment to the seller.Letter of Credit remains a cornerstone of secure cross-border trading.
💰 Advance Payment• Buyer pays before shipment.• Lowest risk for exporter, but highest risk for importer.• Common when the buyer is new or the seller has strong market demand.
📑 Open Account• Goods are shipped first, and payment is made later.• Highest risk for exporter, favorable for importer.• Often used in long-term partnerships with trusted buyers.
🏦 Documentary Collection• Banks act as intermediaries, handling shipping documents in exchange for payment.• Offers a moderate balance of trust and security.• Exporter retains control until payment obligations are met.
🚢 Letter of Credit (LC)• A bank guarantees payment once the exporter meets agreed shipment conditions.• Provides security to both buyer and seller.• Widely used in large international transactions.
📦 Consignment• Exporter ships goods, and payment is made only after goods are sold by the importer.• Requires high trust and strong relationship.• Useful when building long-term market presence.
✅ The right payment method depends on:• Business relationship• Country risk• Buyer’s creditworthiness• Value of shipment• Market conditions