FOB, CIF or DDP? Incoterms and Payment Terms for Beauty-Appliance Orders
The Incoterm is the line where cost and risk change hands, and the payment schedule decides who carries the risk across it. A practical walk through EXW, FOB, CIF and DDP on beauty-appliance orders, what each term leaves you paying for, and how to tie deposit, balance and inspection into one sequence.
Two things decide your landed cost and both are usually missing from the quotation: the named place that follows the Incoterm, and the moment the money becomes due. FOB on its own names no port. DDP on its own names no edition of the rules. Comparing supplier A's FOB Ningbo against supplier B's EXW Shenzhen is comparing two different deals, because the eight to fifteen percent gap in unit price is often nothing more than the freight and the export clearance that one quotation includes and the other does not. So the first rule is dull but effective: do not compare unit prices until the trade terms are identical, and once they are, compare the delivered cost instead of the unit price.
Where risk actually transfers is the part buyers most often get wrong. On EXW the risk passes at the factory gate and you arrange loading, export declaration, freight, insurance and import, which is the cheapest on paper and normally the wrong choice for a small buyer with no export capability in China. On FOB named port the supplier clears export and risk passes once the goods are on board, so the sea leg and the insurance are yours. CIF and CFR look as though the supplier has taken responsibility, because the supplier books and pays the freight and in CIF the insurance as well, but risk still transfers at the origin port: a CIF seller is not answerable for a container that arrives wet. Only DDP pushes the risk to your door and settles import duty, and DDP deserves two questions before you accept it. Can that seller legally act as importer of record in your country, and will you still receive the declared customs value you need in order to reclaim import VAT.
Choose the term by your own capability rather than by habit. If you import continuously, FOB plus your own forwarder is usually the cheapest structure and it leaves you the paper trail that matters, with your company named on the entry, a customs value you can see and import VAT you can reclaim. If this is your first container, a DAP or DDP shipment from a supplier that has a European or American entity removes a great deal of work, and the premium you pay for it is often money well spent. One contradiction is worth querying: a Chinese factory selling EXW still needs to declare its own export in order to collect the VAT refund, so a supplier that insists on EXW while also insisting on handling the export paperwork is contradicting itself. Whichever term you settle on, write Incoterms 2020 and the named place into the purchase order, because under DAP and DDP it is at that named place where risk passes.
The standard thirty percent deposit and seventy percent balance has to be read as what it actually buys. The deposit covers the supplier's material purchase, and the balance before shipment means you wire the money while you still have no evidence about the units in the carton. For a first order that is normal practice worldwide and it is really a credit question: the supplier is financing your order and wants that exposure closed before the vessel sails. Three alternatives are worth pricing. Balance against a copy of the bill of lading still means paying before you see the goods, but the goods and the documents now genuinely exist. A sight letter of credit makes a bank check the documents instead of taking the supplier's word for them, and although it adds issuance and document fees it is a reasonable structure with a new supplier or above roughly fifty thousand US dollars. Platform escrow works too, provided you read what the escrow actually covers, because it covers what the contract says rather than what you assumed it said.
The linkage most buyers miss is that money should be released against evidence rather than against dates. Put the whole sequence into the purchase order: a golden sample signed and retained by both sides before the deposit is paid; first-off or pre-production sample approval before mass production begins; a third-party pre-shipment inspection carried out against a sampling plan you name, where general inspection level II with AQL 2.5 for major defects and 4.0 for minor defects is a common house standard, with the balance released only against that inspection report; and then five to ten percent held back against the defect and dead-on-arrival rate of the first container. Say explicitly who pays when an inspection fails, which in normal practice means the supplier reworks and pays for the re-inspection. Keep the warranty clause separate from the payment schedule, so that a commercial argument does not become a withheld payment that blocks your own shipment.
So the purchase order should carry the Incoterm with its named place and the 2020 edition, payment milestones tied to documents and events rather than to calendar dates, the inspection standard with its sampling level and AQL values, a quantity tolerance of about five percent which is normal when cartons cannot be split, the spare part percentage and the consumables such as filters, gel or replacement heads, and the warranty term with its dead-on-arrival handling and the question of who pays return freight. Add the model designation and the packaging artwork version that the labels will carry. Two extra pages at order stage are what save the argument that otherwise happens when the container is already at sea and each side is reading its own email.