Incoterms: a guide to the 11 Incoterms 2020 rules, risk and payment timing

A cross-border purchase often goes wrong over one simple assumption: the contract says "FOB" or "DAP", and treasury takes it that the acronym also fixes when payment is due and who owns the goods. It does not. The acronym orders delivery and risk, not money.

At Soulbit Academy we explain Incoterms 2020 from the cash position of an SME that imports or exports in Latin America: what each rule defines, what it leaves out, and how to match prepayment, payment against documents or open credit to the point where risk passes. Bank-backed trade guarantees have their own piece, letters of credit, guarantees and trade finance for SMEs, and here we only link to it.

What Incoterms 2020 are and what they do not govern

Incoterms 2020 are a set of eleven three-letter trade terms published by the ICC. A sales contract incorporates them to split delivery, risk, costs and formalities between seller and buyer. They are contractual rules, not law: they bind only if the parties cite them in the contract.

The ICC is explicit about the limits. In its Q&A document it says the rules do not deal with the transfer of property, title or ownership of the goods sold, and that parties must provide for this in the contract. The same source lists the time, place, method and currency of payment of the price among the matters the rules do not cover.

The Incoterm answers three questions: where delivery happens, who bears the risk of loss or damage from that point, and who pays for carriage, insurance and export and import formalities. The sales contract must answer three others separately: how much, when and by what method the buyer pays.

Does an Incoterm require payment at a particular time?

No. None of the eleven rules sets a payment deadline or a payment method. An FOB contract can be settled by prepayment, against documents or at 60 days, and so can a DDP contract. That choice belongs to the contract.

The 11 Incoterms 2020 rules: delivery, risk and costs

The 11 rules split into seven for any mode of transport and four for sea and inland waterway transport. The ICC notes that CIF is reserved for use in maritime trade, and the same holds for FAS, FOB and CFR.

Table 1 summarizes delivery and risk points based on the ICC official checklist. The full rule text prevails.

Rule	Transport mode	Where delivery happens and risk passes	Key point for the CFO
EXW	Any mode	At the seller's premises, not loaded	The buyer bears almost everything, including export
FCA	Any mode	To the carrier named by the buyer, at the agreed place	The seller clears export
CPT	Any mode	On handing over to the first carrier	The seller pays freight, but risk passes earlier
CIP	Any mode	On handing over to the first carrier	As CPT, with insurance under Clauses (A)
DAP	Any mode	At destination, ready for unloading	The seller bears risk up to destination
DPU	Any mode	At destination, unloaded	The seller also handles unloading
DDP	Any mode	At destination, cleared for import	The seller bears import duties and taxes
FAS	Sea	Alongside the vessel at the port of shipment	The buyer loads and books the freight
FOB	Sea	On board the vessel at the port of shipment	The buyer books the freight
CFR	Sea	On board the vessel at the port of shipment	The seller pays freight, but risk passes at loading
CIF	Sea	On board the vessel at the port of shipment	As CFR, with minimum cover bought by the seller

Under CPT, CIP, CFR and CIF the seller pays the main carriage, but risk passes to the buyer at the delivery point, before the goods arrive. These rules separate who pays for freight from who bears the risk. In the D group (DAP, DPU and DDP) the seller bears risk up to destination, though that does not remove the risk that the seller fails to ship.

What is the difference between CIF and CIP?

CIF is a maritime rule under which the seller buys minimum insurance, while CIP works for any mode of transport and since 2020 requires wider cover. Under CIP risk passes on handover to the carrier; under CIF, when goods are loaded on board, not on arrival.

What changed in Incoterms 2020 compared with 2010

Among the Incoterms 2020 changes highlighted by the ICC are DPU replacing DAT, wider CIP insurance and an on-board bill of lading option under FCA.

DPU replaces DAT and accepts any place of destination, not only a terminal. DAT, "delivered at terminal", became DPU, "delivered at place unloaded". The ICC says it is not a new rule: it was renamed and moved to reflect its content more accurately. Under DPU the seller unloads at destination. Under DAP it does not unload.

CIP requires cover compliant with Institute Cargo Clauses (A) or similar clauses; CIF retains minimum cover under Clauses (C).

FCA now accepts a bill of lading with an on-board notation when goods go by sea. If the buyer needs it, for instance for a letter of credit, the parties can agree that the buyer instructs the carrier to issue it to the seller after loading.

As of November 2026, Incoterms 2020 is the current edition we could identify, and the ICC advises stating the year when incorporating the rules.

Risk, delivery and title: why payment does not follow the Incoterm

Risk passes at the delivery point the rule sets, title passes when the contract or governing law says so, and payment falls due when the parties agree. These are three separate moments. They may coincide or not, and each has its own cash owner and document.

Under FOB, for example, risk passes once goods are on board. The buyer may have paid weeks earlier or pay later. If the cargo is lost at sea, the buyer should review any insurance cover and its rights against the carrier. The contract or governing law determines when title passes.

Who bears the loss if goods are damaged after payment but before delivery?

Whoever holds the risk at that moment bears it: the buyer if the damage occurs after the delivery point the rule sets, and the seller if it occurs before. Paying in advance does not move the risk.

For treasury, the risk milestone is not the payment milestone, and the two can fall on different dates. A US buyer sourcing from a Mexican plant and a Colombian importer buying machinery face the same logic, even though customs formalities differ by country.

How to match payment timing and method to the Incoterm

Matching means that the payment timing and method offset the exposure left by the point where risk passes. The earlier the buyer pays and the later the seller bears risk, the larger the buyer's exposure, and the reverse. The CFO decides how much exposure to tolerate and writes it into clauses.

Table 2 crosses three common payment forms with the type of rule. They are reading criteria, not universal recommendations.

Payment form	Main exposure	Example rule	What to agree
Prepayment	The buyer pays before any goods are in transit	DAP: seller bears transit risk up to destination	Payment milestones, refund guarantee and shipping deadline
Payment against documents	Payment depends on the shipping documents being correct	FCA, CFR, CIF or CIP: check the required document	Exact document list and presentation deadline
Open credit	The seller finances the buyer from delivery	Any rule: payment terms are agreed separately	Due date, currency and consequences of late payment

Prepayment concentrates the buyer's exposure. A DAP contract protects against transit risk but not against failure to ship, so split the payment into milestones. An early-payment discount is another lever, covered in early-payment discounts with overseas suppliers.

Payment against documents protects only if the documents are well defined: bill of lading, invoice and policy must match the rule. Open credit shifts exposure to the seller. When the seller distrusts the buyer, a letter of credit replaces credit terms, and the neighbouring article on letters of credit covers how it works.

Illustrative example with assumptions: buying machinery under two Incoterms

The same machinery contract produces a different cash exposure under each Incoterm. The case below is hypothetical, its figures are assumptions and they do not represent Soulbit prices or results.

Assumptions: a Colombian SME buys a machine for USD 120,000 from a manufacturer in Asia, with a 30% prepayment and the balance against documents. Production and transit times are assumed at 45 and 35 days.

Under FOB the buyer books freight and insurance, and risk passes once the machine is on board. The USD 36,000 prepayment is paid first, the USD 84,000 balance is released on presentation of documents, and the buyer carries the 35-day voyage.

Under DAP the seller bears risk up to destination and the balance can be tied to delivery rather than shipment. The buyer pays for import. Compare landed cost: FOB and DAP allocate freight, insurance and risk during those 35 days differently. For a real import flow, see the case of a Colombian importer paying suppliers in Asia. For the seller's side, see the coffee exporter case on collecting from abroad.

When should the company book the purchase and the payment obligation?

It depends on the applicable accounting standard and on when the company obtains control of the goods, which Incoterms help identify but do not settle. Ask your accountant. A good control is to track three dates per transaction: prepayment, risk transfer and balance payment.

What Soulbit's V1 delivers and what it does not

Soulbit does not choose or interpret Incoterms: it is a payment and treasury rail for executing a payment already agreed. The V1 lets a company pay overseas suppliers from USDC and USDT balances, convert by quote through eOTC (OTC exchange) and operate with fiat in USD, EUR and GBP.

For the exporter, the V1 includes payment links and QR collection codes, useful for collecting a balance or prepayment. The local bank rail exists only in Colombia. To see how collection works, read what a payment link is and how to collect internationally.

What Soulbit does not do matters just as much. It does not set or validate the Incoterm in your contract, book freight or insurance, handle customs, issue letters of credit or guarantees, or replace your trade adviser.

A stablecoin payment does not change shipment risk: the Incoterm, timing and guarantees still depend on the contract. Confirm first that the supplier accepts that method.