What Are Incoterms?

Incoterms are short codes such as FOB or CIF that sit in a sale contract and invoice. According to the ICC, the eleven rules clarify the tasks, costs and risks involved in delivering goods from sellers to buyers. A term tells both sides who arranges transport, who pays for it and where the risk moves from seller to buyer. They are written for contracts for goods, so a pure services invoice does not need one. The rules take effect only if the parties name them in the contract, usually with the edition, for example Incoterms 2020.

For example, an exporter of handicrafts agrees a sale with a buyer abroad on FOB terms with a named Indian port. The contract and invoice state FOB and the port, so both sides know the exporter delivers the goods on board at that port and the buyer takes over the later transport.

• Contracts: A named term reduces disputes about who books the ship, pays freight and carries the risk. The ICC describes the rules as a way to avoid costly misunderstandings.
• Invoicing: The term usually appears on the commercial invoice next to the price. A price quoted on one term can differ from a price on another, since freight and insurance may be inside or outside it.
• Bank compliance: Your AD bank may ask for the invoice and shipping documents when it matches a payment to an export under the FEMA regulations. A clear term on the invoice makes the value easy to follow.
• Tax: Incoterms are a commercial convention. For GST and income tax treatment, ask your adviser, since the term alone does not decide tax outcomes.

The seller and buyer agree a term, name it in the contract with the edition and place, and repeat it on the invoice and shipping papers.

1. The parties discuss who will arrange transport, insurance and customs clearance.
2. They pick a term from the eleven rules that matches that split.
3. They write the term, the named place and the edition in the contract, for example Incoterms 2020.
4. The seller prices the goods on that basis and raises the invoice with the same term.
5. The goods move and the risk passes at the point the term sets.
6. Both sides keep the contract, invoice and transport documents together.

You choose one term, name the place and the edition, and write them on the contract and invoice. Confirm the choice with your buyer before you quote a price.

1. List what you can arrange, such as export packing, domestic transport and port handling.
2. Decide with the buyer who books the main carriage and who insures the goods.
3. Select the matching term from the ICC rules and name the place.
4. State the edition, for example Incoterms 2020.
5. Quote the price on that term and show the term on the proforma and commercial invoice.
6. Keep the shipping documents that prove the delivery point.

• Law: Incoterms are contract terms published by the ICC, and they apply when the parties choose them.
• Services: The rules cover contracts for goods. A services invoice does not use them.
• Payment: A term describes delivery tasks, costs and risk. Payment timing is agreed separately in the contract, see export payment terms.
• One term fits all: The right term depends on the goods, the route and what each side can arrange. Agree it for each deal.

• Commercial invoice: The seller's bill for the goods, often showing the trade term.
• Proforma invoice: A preliminary invoice used for quotation.
• Bill of lading: The carrier's document for goods shipped by sea.
• Shipping bill: The customs document for goods exports.
• Export payment terms: How and when the buyer pays.

Every rule and definition on this page is linked to its official source, checked on the dates below.

1. ICC, Incoterms rules, Eleven trade terms; Incoterms 2020 in force 1 January 2020; tasks, costs and risks of delivery (checked 9 Oct 2026)
2. RBI, FEMA (Export and Import of Goods and Services) Regulations, 2026, FEMA 23(R)/2026-RB, Export monitoring and AD bank matching of receipts (checked 9 Oct 2026)