Incoterms were introduced in 1936 by the International Chamber of Commerce (ICC). The purpose of Incoterms was to give a clear explanation about the exact meaning of the various terms of sale in use at that time. Over time they became recognised by exporters, importers, banks and insurance companies on an international basis.
Why do I need Incoterms?
If you have been seeling goods to other EU companies then you may not have needed Incoterms in your contracts for sale and you would not have needed Commercial Invoices. However, regardless of the outcome of the trade talks (now concluded, but details still to be published!) it’s likely businesses that sell to the EU will switch to becoming international (3rd Country) exporters.
Even if you have been using Incoterms with your EU sales you will still need to make changes. In particular, you will need to switch terms from Delivered Duty Paid (DDP) to Delivered At Place (DAP). You need to this to reflect that import formalities are now handled in the country where the goods are received. Your liability for them stops there too.
If you do want to continue using DDP then you will need an EU EORI number in addition to your UK EORI number. You need to consider carefully before doing this though as it could add significant complexity to your exporting.
To avoid confusion, internationally agreed Incoterms should be used to spell out exactly what delivery terms are being agreed. These terms set out important factors:
- where the goods will be delivered
- who arranges transport
- who is responsible for insuring the goods, and who pays for insurance
- who handles customs procedures, and who pays any duties and taxes
Example of some Incoterms
As the exporter you might agree to deliver goods, at your expense, to a port in the customer’s country. The customer might then take over responsibility, arranging and paying for customs clearance and delivery to their premises. As exporter you might also be responsible for arranging insurance for the goods until they reach the port, but pass this cost on to the customer. These terms should also cover payment details such as the currency, method of payment and due date.
A good way to think of these terms is that they should cover: Tasks costs and risks to be born by the seller and the buyer.
What are the recognised Incoterms
Incoterms are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions.
You need to think about the mode of Transport for the goods of the eleven (11) rules seven (7) can be applied no matter what the mode of transport for the goods is. Four (4) of the rules only apply to Sea or Inland Waterway transport.
The seven Incoterms rules for any mode 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).
Note: the DPU Incoterms replaces the old DAT, with additional requirement for the seller to unload the goods from the arriving means of transport.
The four Incoterms 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)
How can Accord Help Us?
You will need to make some changes to your Sage 300 system to include these Incoterms and also to ensure your commercial invoice will comply with the new requirements. We have bundled up this work into a fixed price to make it simple for everyone. You will get:
- Set-up a dropdown list of Incoterms to use when creating an order, shipment and invoice
- Amendment of your invoice layout to include: Incoterms, EORI Number and Commodity Codes
- Briefing / Training session with one of our expert consultants
- Fixed price set-up price of £250 plus £50 per additional invoice layout.
Contact us today on our Brexit Hotline: +44 1732 868765