What to Know About Shipping Terms and Payment Definitions
By Aidan Conaty, TCI China Supply Chain Consultant
If you’re working with international suppliers or customers, you’ve probably come across Shipping terms and Payment definitions like FOB, CIF, or EXW—and maybe scratched your head wondering what exactly they mean, or worse, assumed they’re all more or less the same. Spoiler alert: they’re not.
In my work helping firms reduce risk and improve transparency with their China supply chains, I’ve seen misunderstandings around shipping terms and payment conditions lead to delays, added costs, and in some cases, legal headaches. So, in this post, I’ll break down the key shipping and payment terms you need to know—and explain how we at TCI China help our clients navigate them.
What Are Incoterms?
Incoterms, short for International Commercial Terms, are a set of standard trade terms published by the International Chamber of Commerce. They’re used globally to define the responsibilities of buyers and sellers in international transactions.
Here’s the thing: Incoterms don’t cover everything, but they do help everyone speak the same language when it comes to who pays for what, and who’s responsible when things go wrong during shipping.
Key Incoterms to Understand
Let me walk you through a few of the most commonly used terms—these are the ones that come up again and again in my work with international clients:
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EXW (Ex Works)
The seller makes the goods available at their premises. That’s it. From there, the buyer arranges everything: pickup, transport, export paperwork—you name it. It’s very buyer-heavy. -
FOB (Free On Board)
Common in sea freight. The seller is responsible for getting the goods on board the vessel. Once it’s loaded, the risk shifts to the buyer. Simple—but only if everyone’s clear on what “on board” means. -
CIF (Cost, Insurance, and Freight)
Here, the seller pays for shipping and insurance to the destination port, but the risk still passes to the buyer once the goods are loaded on the ship. Sounds fair—but make sure you know what insurance is actually being provided. -
DAP (Delivered at Place)
The seller takes care of nearly everything—transport, customs export formalities, and getting the goods to the buyer’s location. The buyer handles import duties. It’s popular for door-to-door shipments. -
DDP (Delivered Duty Paid)
This is the Rolls Royce of Incoterms. The seller takes care of everything—including import duties and taxes. Great for buyers who want minimal fuss, but sellers should price this accordingly.
Each term has its place, depending on the goods, destination, and relationship between the buyer and seller. At TCI China, we often advise clients to avoid simply reusing the same term across the board—what works for one shipment might be risky for another.
Let’s Talk About Payment Terms
Shipping is just one side of the trade coin. The other big one? Payment. And let me tell you, getting this wrong can be costly.
Here are a few of the most common payment methods used in cross-border transactions:
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Advance Payment
The buyer pays upfront before shipment. It’s risk-free for the seller, but high-risk for the buyer. Works if there’s high trust—or small order values. -
Letter of Credit (L/C)
A bank acts as a middleman, guaranteeing the seller gets paid—if they meet the agreed shipping conditions. It’s a safer option for both parties, though it comes with paperwork and bank fees. -
Open Account
Goods are shipped, and the buyer pays later (usually 30–90 days). Great for the buyer’s cash flow, but risky for the seller unless there’s a long-standing relationship. -
Documentary Collection
The seller ships the goods and gives the shipping documents to their bank. The bank only releases the documents to the buyer once payment is made. Not as secure as a Letter of Credit, but better than nothing.
Each method carries different levels of risk for the buyer and seller. At TCI China, we regularly review our clients’ payment terms—especially when they’re working with new suppliers or entering unfamiliar markets.
Where TCI China Fits In
So, how does this all tie into what we do at TCI China?
Our team works with international companies to help them manage risk, streamline operations, and build stronger partnerships with suppliers—especially in China. We don’t just explain terms—we help you apply them to your specific situation.
Here’s how we typically support our clients:
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Contract and Term Review
We review your shipping and payment terms to flag any weak spots or hidden risks. Too many clients come to us after things go wrong—we prefer to get involved earlier. -
Supplier Negotiation Support
We act as a bridge between you and your suppliers, helping clarify who’s responsible for what. Often, both parties think they’re on the same page—but they’re not. -
Compliance and Documentation Checks
From export paperwork to proof of delivery, we help ensure that everything’s in order to avoid hold-ups or fines. -
Training and SOP Development
For businesses scaling up, we help internal teams get to grips with trade terms—so your staff aren’t relying on Google mid-contract.
Final Thoughts
Incoterms and payment terms aren’t the sexiest part of global trade—but they’re absolutely essential. Getting them right means fewer surprises, lower costs, and stronger supplier relationships.
If you’re feeling unsure about what terms to use—or suspect your current setup could be working harder for you—let’s talk. TCI China exists to make international trade smoother, safer, and more strategic.
Want help reviewing your next shipment contract? Please read about our China Purchase Contract Services.
FAQs – Shipping & Payment Terms Explained
Q: What are Incoterms and why are they important?
A: Incoterms are international trade rules that define responsibilities between buyers and sellers. They clarify who handles shipping, insurance, customs, and risk at each stage.
Q: Which Incoterm is best for importers?
A: DDP (Delivered Duty Paid) is often preferred by importers because it shifts most responsibilities to the seller. However, it comes with a higher price tag.
Q: What is the safest international payment method for sellers?
A: Letters of Credit offer balanced security by guaranteeing payment if the seller meets agreed shipping and documentation terms.
Q: Can TCI China help me choose the right trade terms?
A: Absolutely. We help businesses assess their supply chain, review contracts, and choose the right Incoterms and payment strategies for their needs.
About the Author
Aidan Conaty has spent over 20 years helping international firms navigate supply chains and reduce risk when working with Chinese suppliers. Through TCI China, he works with businesses to review and refine their operations—saving time, cutting costs, and avoiding the common traps of international trade. If you are interested in using TCI’s service, please find his contact below
Mobile- Messenger (Click to Connect)
Or at the following numbers:
(Europe/ Rest of the World) +353 1 885 3919
(UK) +44.020.3287.2990
(North America) +1.518.290.6604
Or email me, Aidan Conaty
Aidan Conaty