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1.4 Negotiating with the supplier: Incoterms, payment and contract

Negotiating is not just lowering the price: it means agreeing in writing who pays and bears which risk, how and when payment is made, and what happens if something fails. Learn to use Incoterms®, payment methods and a contract.

Module 1: Import strategy · Reviewed on 20/10/2026 · Español

Goal: Compare quotes with different Incoterms® rules on a common CIF basis and choose a payment method and a contract that share the risk well.

Negotiating is not just lowering the price. Before you pay, you agree on what you buy, how much, at what cost, how and when you pay, who carries the goods and what happens if something goes wrong. Everything must be in writing. Start from the proforma invoice, which is the supplier's formal offer with price and terms, and turn it into a contract or a purchase order with clear terms.

Incoterms® 2020 are eleven rules from the International Chamber of Commerce (ICC) that set who arranges the transport, who pays each cost and where the risk passes from seller to buyer. Seven work for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU and DDP) and four only for sea transport (FAS, FOB, CFR and CIF). They do not set the price, the payment method or who owns the goods. Always write the rule with the place and the version, for example “FOB Ningbo, Incoterms® 2020”.

Choose according to how much control you want. With FOB or FCA, you book the international freight and control cost and date. With CFR or CIF, the seller books the freight (and in CIF, minimum insurance), but the risk is already yours from loading. EXW requires you to organize even the pickup from the factory and the export procedure. Avoid DDP: the seller would have to handle the import formalities in Peru, and that is almost never practical. Peruvian customs starts from the CIF value to calculate taxes; that is why you need the freight even if you buy FOB.

The payment method shares the risk. If you pay everything in advance, the risk is yours. If the seller is paid at the end, the risk is theirs, so they will charge more or will not accept. Between the two extremes there are options: a deposit with the balance against a copy of the shipping document, a letter of credit (a bank's promise to pay the seller if they present the agreed documents) or documentary collection. They are covered in depth in the course on Finance, Costs and Payment Methods. In a first purchase it is common to agree on a partial deposit and to pay only to an account in the supplier's name.

The international sales contract can be short, but it must include: the parties, the product with specifications and approved sample, quantity, price and currency, Incoterm with place, payment method and deadlines, delivery date, packaging, inspection, warranty and claims, late-delivery penalty, force majeure, governing law and dispute resolution. If the parties are in countries that adopted the Vienna Convention (CISG), such as Peru and China, it governs your purchase unless you exclude it. Contracts are covered in depth in the course on International Trade and Marketing.

Take care with the process. Negotiate in writing, keep the correspondence and have another quote at hand: it gives you bargaining power. If you receive an email asking you to pay to a new account, confirm by phone, at a number you already had, before you transfer. Supplier impersonation by email is a common fraud.

Key ideas

Turn the proforma invoice into a contract or purchase order with price, quality, deadlines, payment and claims in writing.
Incoterms® 2020 set who arranges the transport, who pays each cost and where the risk passes; write the rule, the place and the version.
FOB or FCA give you control of the freight; EXW loads origin formalities on you; DDP is almost never practical for importing into Peru.
The payment method shares the risk: paying everything in advance leaves it on your side; always confirm that the account belongs to the supplier.
The CISG governs between companies from countries that adopted it, such as Peru and China, unless the contract excludes it.

Rule	Who books the international freight	Where the risk passes to the buyer	When it makes sense
EXW	The buyer	At the seller's premises, when the seller makes the goods available	Only if you have someone to handle the export and the pickup at origin
FCA	The buyer	At the agreed point, on handing over to the carrier	When you want to control the freight, especially for containers
FOB	The buyer	When the goods are on board the vessel at the port of loading	When you want to control the freight and use sea transport
CFR	The seller	On board the vessel at the port of loading	When you prefer the seller to book the ship
CIF	The seller (with minimum insurance)	On board the vessel at the port of loading	Same as CFR, but with insurance included
DAP	The seller	At the agreed place of destination, before unloading	When you want to receive at destination and handle the import formalities yourself

Worked example

Mercados Andinos compares three quotes with different Incoterms

Mercados Andinos S.A.C., of Lima, wants 5,000 units of the same product. It receives three quotes with different Incoterms: they cannot be compared as they are.
It sets a common basis: the CIF value at Callao (price plus freight and insurance), which is also the starting point of the customs value in Peru.
Offer A: FOB Ningbo, US$ 6.00 per unit. Total FOB = 5,000 × 6.00 = US$ 30,000.00. Its freight forwarder quotes freight and insurance to Callao: US$ 2,100.00. Equivalent CIF = 30,000.00 + 2,100.00 = US$ 32,100.00 (US$ 6.42 per unit).
Offer B: CIF Callao, US$ 6.85 per unit. Total = 5,000 × 6.85 = US$ 34,250.00. It is US$ 2,150.00 more than offer A on a CIF basis (34,250.00 − 32,100.00).
Offer C: EXW factory, US$ 5.55 per unit. Total = 5,000 × 5.55 = US$ 27,750.00. Add the local transport, loading and export clearance in China quoted by its agent: US$ 650.00. Equivalent FOB = US$ 28,400.00. With freight and insurance, equivalent CIF = 28,400.00 + 2,100.00 = US$ 30,500.00 (US$ 6.10 per unit).
It compares on a CIF basis: C = US$ 30,500.00; A = US$ 32,100.00; B = US$ 34,250.00. C saves US$ 1,600.00 against A and US$ 3,750.00 against B.
It looks at what the price does not show. With EXW the risk is yours from the factory and the export clearance depends on your agent in China. If that agent exists and insures the cargo from the factory, choose C. If not, A is the balanced option. B is only justified if it offers another advantage.

Result: The cheapest offer on paper (C) saves US$ 1,600.00 against A, but it shifts risk and formalities to the buyer. Always compare on a CIF basis and decide according to your logistics capacity. The freight and insurance figures are assumptions; use real quotes.

Real cases

Incoterms® rules follow the ICC 2020 version

2020

The International Chamber of Commerce (ICC) maintains the Incoterms® rules, which have been used in international commercial contracts since 1936. The current version is the 2020 one and brings together eleven three-letter terms. It matters because the term you choose defines who books the transport and where the risk passes, and a contract without a clear Incoterm leaves the argument open when the goods are damaged or delayed.

Write the rule, the place and the version in the contract, for example “FOB Ningbo, Incoterms® 2020”.

Source: CCI – Incoterms® 2020

The Vienna Convention (CISG) has applied in Peru since 01/04/2000

01/04/2000

According to the status record of UNCITRAL, Peru acceded to the Vienna Convention on the International Sale of Goods on 25/03/1999 and it entered into force for the country on 01/04/2000. China approved it on 11/12/1986 and has had it in force since 01/01/1988. It matters because a contract between a Peruvian importer and a Chinese supplier is covered by the CISG if the parties do not exclude it.

Decide with your adviser whether you want the CISG to govern your contract or whether you exclude it, and put that decision in writing.

Source: CNUDMI – Estado de la CISG

Business email fraud: US$ 3,046,598,558 in losses reported to the FBI

2025

The 2025 Annual Report of the FBI's Internet Crime Complaint Center (IC3) records 24,768 business email compromise (BEC) complaints with reported losses of US$ 3,046,598,558. In this fraud, the criminal poses as a supplier or an executive and asks for payment to a new account. It matters because it affects any company that pays foreign invoices by bank transfer.

Before you transfer to a new or different account, confirm the change by phone at a number you already had.

Source: FBI IC3 – Informe Anual 2025

Common mistakes

Accepting “FOB price” or “CIF” without a place or version. Write the full rule: acronym, place and “Incoterms® 2020”.
Comparing quotes with different Incoterms without bringing them to a common basis. Add freight and insurance until you have the same point of comparison.
Using EXW without someone to clear the export and insure the cargo from the factory. If you do not have one, ask for FCA or FOB.
Paying everything in advance or accepting a change of bank account by email. Agree on a partial deposit and confirm by phone.
Closing the purchase by chat, with only price and quantity. Write down quality, deadlines, claims, penalties and how disputes are resolved.

Practise with the calculators, the COMEX Simulator and the review questions on the main page.

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