7 Notes on Incoterms and Payment: International Contracts

When signing an international sale-of-goods contract, the two biggest risks Vietnamese businesses face are: choosing the wrong Incoterms rule (only discovering who bears the risk after the goods are damaged) and losing money to unsafe payment terms (goods shipped, payment never arriving).

This article compiles 7 practical notes on Incoterms and payment for international sale contracts — each tied to a common business mistake — with the legal framework: the Civil Code 91/2015/QH13 (Articles 430–454 on sale-of-goods contracts), the Commercial Law 36/2005/QH11 (Articles 24–62; Article 5 — international commercial customs apply when the parties so agree) and the CISG (Vietnam a member since 1 January 2017).

Note 1 — Always state the Incoterms version

The mistake: the contract says only “CIF Haiphong” with no version. In a dispute, each side invokes a different version (Incoterms 2010 vs. 2020 differ on insurance, on FCA, and more).

The rule: Incoterms 2020 (ICC, effective 1 January 2020) is the latest version, with 11 rules. Always write the full reference: “CIF Hai Phong Port, Vietnam, Incoterms 2020” — rule + named place + version.

Note 2 — Understand what Incoterms actually do

The mistake: assuming that choosing FOB “takes care of everything” — title, payment, the lot.

The rule: Incoterms allocate only costs, procedures and the point of risk transfer between seller and buyer. They do not transfer title to the goods, do not govern payment terms, and do not replace the contract. Critically, Incoterms are trade customs — they apply only when the contract expressly incorporates them (Article 5 of the Commercial Law).

Note 3 — FOB vs. CFR vs. CIF

The mistake: using “CNF” (an obsolete abbreviation absent from Incoterms) or misunderstanding the risk-transfer point.

The rule: all three transfer risk when the goods are loaded on board the vessel at the port of shipment. They differ on costs and insurance:

FOB: the seller bears costs until loading; the buyer charters the vessel and buys insurance.
CFR: the seller charters the vessel (pays freight) but does not buy insurance; risk still transfers on loading.
CIF: as CFR, plus the seller must buy insurance — minimum Institute Cargo Clauses (C), 110% of the goods’ value.

Use “CFR”, never “CNF”. All three suit sea/inland waterway transport only — never use FOB for containerised road freight.

Note 4 — Think twice before choosing DAP / DDP

The mistake: the buyer fancies DDP (“the seller handles everything to my warehouse”) without considering the risk that the seller cannot manage Vietnamese import procedures.

The rule: under DAP, the seller bears all risk to the named destination (not unloaded); under DDP, the seller must also clear import customs and pay duties. If the foreign seller lacks import-clearance and tax-payment capacity in Vietnam, DDP becomes a trap — goods stuck at port, everyone blaming everyone. Similarly, avoid EXW (buyer takes over from the seller’s warehouse) if your own logistics team is weak.

Note 5 — Choose safe payment terms: L/C vs. T/T

The mistake: paying 100% T/T in advance to a new counterparty, or accepting unsecured deferred T/T.

The rule:

L/C (letter of credit, under UCP 600): the safest for both sides on first deals or large values — the bank pays when the seller presents “clean” documents conforming to the L/C. The L/C opening cost is the price of safety.
T/T (telegraphic transfer): flexible and cheap, but riskier. Safe practice: a 30–50% deposit, the balance against shipping documents (B/L) or on receipt — depending on trust level.

Note 6 — Insure at the right level

The mistake: assuming “CIF means fully insured”, then discovering at loss time that the minimum cover does not make you whole.

The rule: CIF requires only minimum Clauses (C), 110% of value — a floor, not a recommendation. For CIP (Incoterms 2020), the floor is already Clauses (A) (all risks). Assess the goods’ nature (fragile, high-tech) and consider cover above the minimum.

Note 7 — Lock in governing law, arbitration and payment-fraud defences

The mistake: a million-dollar contract with no governing law and no dispute clause; or an accountant wiring money on a fake “change of bank account” email.

The rule:

State the governing law (e.g., CISG supplemented by Vietnamese law) and the dispute mechanism (VIAC/SIAC/HKIAC arbitration).
Verify every bank-account change request through an independent channel (call a saved number; never reply to the email) — payment cyber-fraud via spoofed emails is rising.

10-point pre-signing checklist

Write the full “rule + port/place + Incoterms 2020”.
Confirm Incoterms are expressly incorporated in the contract.
Remember: Incoterms split costs/procedures/risk — they do not transfer title.
FOB/CFR/CIF: risk transfers on loading; sea transport only.
Use “CFR”, never “CNF”.
DAP/DDP: assess the seller’s clearance and tax-payment capacity.
L/C for new counterparties/large deals; T/T with a 30–50% deposit.
Insurance: CIF minimum C-110%; CIP minimum Clauses (A); consider more.
Lock in governing law + arbitration.
A verification procedure for bank-account changes against fraud.

Frequently asked questions

Are Incoterms 2020 mandatory?
No. Incoterms are ICC trade customs; they apply only when the parties incorporate them in the contract (Article 5, Commercial Law 36/2005).

How do CIF and CIP differ on insurance?
CIF requires minimum Clauses (C), 110% of value; CIP (Incoterms 2020) requires minimum Clauses (A) (all risks).

L/C or T/T?
L/C is safest for first deals or large values; T/T is more flexible but pair it with a 30–50% deposit and balance against documents.

Legal basis

Civil Code 91/2015/QH13: Articles 430–454 (sale-of-goods contracts).
Commercial Law 36/2005/QH11: Article 5 (international commercial customs), Articles 24–62 (sale of goods).
CISG — the UN Convention on Contracts for the International Sale of Goods (Vietnam a member since 1 January 2017).
Incoterms 2020 (ICC, effective 1 January 2020); UCP 600 (L/C customs).

Note: Incoterms is an ICC publication; this article is a summary for reference — consult the official Incoterms 2020 text and a lawyer when negotiating.

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The information in this article is general in nature and does not constitute legal advice. The status of cited instruments was verified as of 14 October 2026.

Transparency: this article was prepared by the FLAW AI Legal Council using AI systems. This article is awaiting review by the QA Council and has not been reviewed by a practising lawyer.