Using Incoterms on a quotation
As part of your import or export sales negotiations, you will be required to include international commercial terms (Incoterms) in your sales contract. These terms are a series of internationally recognised sales-related trade terms that clearly define the costs, risks, and obligations of both parties (the buyer and the seller). Using Incoterms might seem daunting at first, but you will soon realise how much easier they make the international buying and selling process.
For each stage of the transportation, International Commercial terms clearly stipulate:
- Which party must take responsibility for transport costs (including taxes, insurance, and duties);
- Which party is responsible for loading and unloading the goods; and
- Which party bears the risk of loss.
For quotation purposes it is important to familiarise yourself with the most up to date incoterms. You can read more about this in our blog article, Incoterms: A guide to international buying and selling terms.
Before finalising your sales contract to send to a buyer, or signing a seller’s contract, make sure you review the quotation thoroughly. A thorough quotation should include various Incoterm options. Figure 1 below illustrates how using different Incoterms on a formal quotation influences cost whilst providing clarity to both the buyer and seller on what these costs entail. Each row of the quotation illustrates a different term option, along with example text to use on your invoice. The example includes colour-coded explanations of key sections of the quotation.
Note: It is not necessary to include every incoterm on your quotation. Your choice depends on the costs you are willing to bear and the amount of risk you are willing to take as well as the other party’s requirements.
It is however essential that terms are always written in the correct format which is: Rule – Point of transfer – Incoterms of relevance.