What Are Incoterms?
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions. They specify who pays for shipping, insurance, and customs duties, and at what point the risk of loss transfers from seller to buyer. Odoo supports Incoterms on sales orders and purchase orders, ensuring clear documentation for cross-border trade.
Why Incoterms Matter
Without clear Incoterms, international transactions lead to disputes about who is responsible for freight costs, who handles customs clearance, who bears the risk during transit, and who provides insurance. Specifying Incoterms on every international order eliminates ambiguity and provides a legal framework that both parties and their logistics providers understand. They also affect how landed costs are calculated and allocated.
Common Incoterms
| Term | Name | Seller Responsibility | Risk Transfer |
|---|---|---|---|
| EXW | Ex Works | Make goods available at seller's premises | At seller's location |
| FCA | Free Carrier | Deliver to carrier at named place | When delivered to carrier |
| FOB | Free On Board | Deliver goods onto the vessel | When loaded on vessel |
| CIF | Cost Insurance Freight | Freight and insurance to destination port | When loaded on vessel |
| DAP | Delivered at Place | Deliver to destination, unloaded | At destination before unloading |
| DDP | Delivered Duty Paid | All costs including import duties | At buyer's premises |
Odoo Configuration
Enabling Incoterms
Go to Accounting → Settings and enable Incoterms under the Invoicing section. Odoo comes pre-loaded with the standard Incoterms 2020 list. You can set a default Incoterm for your company that applies to all new sales and purchase orders, or leave it blank to select per order.
Using Incoterms on Orders
On sales orders and purchase orders, select the appropriate Incoterm from the dropdown. The Incoterm appears on printed order documents, invoices, and delivery orders. For international shipments, always specify the Incoterm along with the named place (e.g., FOB Shanghai, CIF Rotterdam, DAP Chicago). The named place clarifies exactly where responsibility transfers.
Impact on Cost Accounting
Selling (Exports)
The Incoterm determines which costs are included in your selling price. Under EXW, the price covers only the goods — the buyer handles all shipping. Under CIF, your price includes freight and insurance to the destination port. Under DDP, your price covers everything including import duties at the buyer's end. The more responsibility you take, the higher your selling price needs to be to cover these costs.
Purchasing (Imports)
When buying internationally, the Incoterm tells you which additional costs to expect beyond the purchase price. Under EXW, you pay for everything from the vendor's door onward. Under FOB, you pay from the port of origin. Under DDP, the vendor covers everything. These additional costs are allocated as landed costs in Odoo Inventory to get accurate product costing.
Choosing the Right Incoterm
- Small companies with no logistics expertise — Use DAP or DDP when buying (vendor handles logistics) and EXW or FCA when selling (buyer handles logistics).
- Companies with freight contracts — Use FOB or FCA to control shipping with your preferred carriers while the other party handles origin or destination logistics.
- Large importers/exporters — Use terms that give you maximum control over the logistics chain, often negotiating better rates through volume.
Document Requirements by Incoterm
- Commercial invoice — Required for all Incoterms. Odoo generates this from the sales order.
- Packing list — Required for all shipped goods. Generated from delivery orders.
- Bill of lading — Required for sea freight terms (FOB, CIF). Provided by the shipping line.
- Certificate of origin — Required by many countries for customs clearance and preferential tariff rates.
- Insurance certificate — Required for CIF and CIP terms where the seller provides insurance.
Best Practices
- Always specify the named place — FOB alone is incomplete. FOB Shanghai is clear and enforceable.
- Match Incoterms to your capabilities — Do not accept DDP obligations if you cannot handle import customs in the buyer's country.
- Document the Incoterm on every international order — Even if you have a default agreement with the trading partner.
- Train your team — Sales and purchasing staff must understand what each Incoterm means for pricing and cost calculations.
DeployMonkey + International Trade
Deploy Odoo on DeployMonkey and configure Incoterms for international trade with AI assistance. Set clear trade terms on every cross-border order from day one.