Jargon: Incoterms (with a brief on Payment terms & Delivery Terms)

Sales Orders (SO) & Purchase Orders (PO) are 2 key trade documents in any business. They usually two important fields: Payment terms & Delivery terms. After a brief on these terms, we go on to explain Incoterms: internationally accepted trade-terms used in international contracts.

Payment terms most often represent the payment instrument (cheques/collaterals), credit period and discounts, if applicable. In the simplest form, P30 indicates that payment will be made 30 days after receiving the bill/invoice. P30/2%20 is a more complex term indicating that if the payment is done within 20 days (instead of the 30-day credit period), the buyer is entitled tot a 2% discount on invoice value. Payment terms could also be based on collaterals like L/C (Letter of Credit) or Irrevocable credits that help minimize the seller’s risk.

Delivery terms are indicative of the agreement on delivery cost, responsibility (=risk) and ownership of transported goods/services. Costs include freight charges, taxes & duties and commissions to clearing agents. As a seller, I may choose to transfer ownership at my premises {ExWorks}, at my port {Free Carrier}, after loading cargo on board air/sea/road/rail vessel {Free On Board}, customer’s port {Delivered Ex Quay/Ship} or right up to ship-to address (address where goods are required to be delivered).

Incoterms are delivery terms standardized by the International Chamber of Commerce (ICC) for use in international trade. The abbreviations along with description & associated buyer/seller liability are mentioned here.

Talking about commission, in reality commission is a sweeter word for greasing charges at ports; needed an example of organized crime, take this! How would it look if I had a ledger account called Bribes? Doesn’t Agent Commission really sound decent? One of my uncles lives of this profession, so I won’t say another word 🙂

References:

http://www.investopedia.com/terms/i/incoterms.asp
http://www.export911.com/e911/export/incoterm.htm
http://en.wikipedia.org/wiki/Incoterms
http://www.iccwbo.org/incoterms/id3045/index.html

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