Incoterms × Payment Terms Matrix
Which Incoterms rule works with which payment method. Best (gold) means the natural fit; poor (red) means the combination has a structural gap in either documents or risk allocation. Tap any cell for the reasoning.
The Incoterm sets who arranges and pays for logistics; the payment method sets who bears the credit risk. Choose them together - a good sales contract does both explicitly, in the same clause.
Legend:
| Incoterm | Advance payment (T/T) | LC at sight | LC deferred / usance | Documentary collection D/P | Documentary collection D/A | Open account |
|---|---|---|---|---|---|---|
| EXW | ● good | ● poor | ● poor | ● poor | ● poor | ● poor |
| FCA | ● good | ● good | ● good | ● fair | ● fair | ● poor |
| FAS | ● good | ● fair | ● fair | ● fair | ● fair | ● poor |
| FOB | ● good | ● good | ● good | ● fair | ● fair | ● poor |
| CFR | ● good | ● good | ● good | ● fair | ● fair | ● poor |
| CIF | ● good | ● best | ● best | ● good | ● good | ● poor |
| CPT | ● good | ● good | ● good | ● fair | ● fair | ● poor |
| CIP | ● good | ● best | ● best | ● good | ● good | ● poor |
| DAP | ● good | ● fair | ● fair | ● fair | ● fair | ● fair |
| DPU | ● good | ● fair | ● fair | ● fair | ● fair | ● fair |
| DDP | ● good | ● poor | ● poor | ● poor | ● poor | ● fair |
Overview & methodology
Why EXW × LC is a structural mismatch
Under EXW the seller is not responsible for export clearance or main carriage, so the seller cannot obtain a compliant on-board bill of lading. A documentary LC requires the seller to present a transport document as evidence of shipment. The two cannot both be true. Convert to FCA - Incoterms 2020 explicitly lets the buyer instruct the carrier to issue an on-board B/L to the seller, solving the presentation problem.
Frequently asked questions
Which Incoterm works best with a letter of credit?
For container shipments, FCA, CPT and CIP with the on-board notation optional under UCP 600 Art. 20 avoid most discrepancies. FOB, CFR and CIF require an on-board B/L which is problematic when the seller delivers to a container yard, not the vessel's rail - the ICC has repeatedly cautioned against them for containerised trade.