Glossary

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Under the EXW term:
Seller’s Responsibilities and Obligations:
  • The seller makes the goods available at their premises (factory, warehouse, etc.).
  • Bear minimal obligations as they only need to place the goods at the disposal of the buyer at the agreed location.
  • Provide necessary documents as agreed upon, such as a commercial invoice.
Buyer’s Responsibilities and Obligations:
  • Bear all risks and costs from the moment the goods are made available at the seller’s premises.
  • Arrange for transportation of the goods from the seller’s location to the destination.
  • Handle customs clearance and pay any applicable duties and taxes.
Under the FCA term:
Seller’s Responsibilities and Obligations:
  • The seller is responsible for delivering the goods to the named carrier at the agreed place.
  • Bear all risks and costs until the goods are handed over to the carrier.
  • Provide necessary documents such as commercial invoice and packing list.
Buyer’s Responsibilities and Obligations:
  • Bear all risks and costs from the time the goods are handed over to the carrier.
  • Arrange for transportation from the carrier’s location to the destination.
  • May be responsible for obtaining import licenses and paying import duties and taxes.
Seller’s Responsibilities and Obligations:
  • The seller must ensure the timely delivery of the goods on board the ship at the designated port of shipment as per the agreed time.
  • Shoulder all costs and risks associated with the goods until they are placed on board. This includes expenses related to getting the goods to the port and handling up to the moment of loading.
  • Provide essential documents such as a commercial invoice detailing the transaction and a packing list specifying the contents and quantities of the shipment.
  • Notify the buyer promptly after the goods are successfully loaded on board the ship.
Buyer’s Responsibilities and Obligations:
  • The buyer is responsible for arranging and paying for the transportation of the goods from the port of shipment to the intended destination. This may involve hiring a shipping company or freight forwarder.
  • Bear all costs and risks once the goods are on board the ship. This includes any potential losses or damages during transit.
Under the CIF term: Forwarder is appointed by the Seller
Seller’s Responsibilities and Obligations:
  • The seller is responsible for arranging and paying for the transportation of the goods to the port of destination.
  • Provide marine insurance to cover the goods during transit.
  • Bear the costs of freight and insurance.
  • Deliver the goods on board the vessel at the port of shipment and provide necessary documents such as commercial invoice, packing list and insurance policy.
Buyer’s Responsibilities and Obligations:
  • Bear all risks and costs from the time the goods are unloaded at the port of destination.
  • Take delivery of the goods at the port of destination.
  • May be responsible for paying import duties and taxes, depending on the terms agreed upon.
Under the DAP term:
Seller’s Responsibilities and Obligations:
  • The seller is responsible for delivering the goods to the named place of destination, ready for unloading from the arriving means of transport.
  • Bear all risks and costs involved in bringing the goods to the destination, including transportation costs and any applicable export duties.
  • Provide necessary documents such as commercial invoice and packing list.
Buyer’s Responsibilities and Obligations:
  • Bear all risks and costs for unloading the goods at the destination.
  • Take delivery of the goods at the specified place of destination.
  • May be responsible for paying import duties and taxes.
Under the DDU term:
Seller’s Responsibilities and Obligations:
  • The seller is responsible for delivering the goods to the named destination.
  • Bear all costs and risks involved in transporting the goods to the destination, excluding duties and taxes.
  • Provide necessary documents such as commercial invoice and packing list.
Buyer’s Responsibilities and Obligations:
  • Bear the risk and cost of any import duties and taxes.
  • Take delivery of the goods at the specified destination.
Under the DDP term:
Seller’s Responsibilities and Obligations:
  • The seller is responsible for delivering the goods to the buyer’s premises at the agreed destination.
  • Bear all costs and risks involved in transporting the goods to the destination, including any import duties and taxes.
  • Handle all customs clearance procedures on behalf of the buyer.
  • Provide necessary documents such as commercial invoice, packing list, and any required import documentation.
Buyer’s Responsibilities and Obligations:
  • Take delivery of the goods at the specified premises.
  • Generally has minimal responsibilities in terms of costs and logistics beyond being available to receive the goods.

A letter of credit is a financial instrument issued by a bank on behalf of the buyer. The bank guarantees payment to the seller upon presentation of specified documents that comply with the terms and conditions of the letter of credit. This method provides a certain level of security for both the buyer and the seller.

This involves the transfer of funds electronically from the buyer’s bank account to the seller’s bank account. It can be done in advance (T/T in advance), where the buyer pays before the shipment of goods; or after shipment (T/T after shipment), where the buyer pays upon receipt of shipping documents.
  • D/P (Documents against Payment): The seller’s bank presents shipping documents to the buyer’s bank. The buyer makes payment to receive the documents and take possession of the goods.
  • D/A (Documents against Acceptance): The buyer accepts a draft (a promise to pay at a future date) presented by the seller’s bank and receives the shipping documents. Payment is made at a later date as per the accepted draft.
The buyer and seller agree that the buyer will pay for the goods at a later date, usually after receiving and inspecting the goods. This method is based on trust between the parties and can be risky for the seller.

Each payment method has its own advantages and risks, and the choice depends on various factors such as the nature of the transaction, the relationship between the buyer and seller, and the level of risk each party is willing to take.

This payment term by check is popular in the USA trading market. The buyer issues a check to the seller as a form of payment. 

This method has some limitations and risks. For the seller, there is a delay in receiving the funds as the check needs to be cleared by the banking system. There is also the risk that the check may bounce due to insufficient funds in the buyer’s account or other issues.
 
In international trade, payment by check is not as commonly used as methods like letter of credit, telegraphic transfer, or documentary collection. These latter methods offer more security and speed in the transfer of funds.
 
If a buyer chooses to pay by check, the seller should take precautions such as verifying the authenticity of the check and ensuring that the buyer has a good credit history. Additionally, sellers may wait for the check to clear before shipping the goods to minimize the risk of non-payment.