When most finance leaders hear “Incoterms,” they think: That’s for the logistics team. But overlooking these international shipping terms can quietly erode your margins, expose your company to risk, or even leave you paying for costs you didn’t agree to.
Let’s break down why every CFO in logistics, freight forwarding, or global trade needs a working understanding of Incoterms—not just for legal liability, but for financial impact.
🧭 What Are Incoterms, Really?
Incoterms (International Commercial Terms) are standardized rules published by the International Chamber of Commerce. They define who is responsible for transport, insurance, customs clearance, and—critically—who bears the risk at each point in the shipping process.
But here’s the kicker:
Where risk transfers, costs often follow.
💡 Why CFOs Should Care
- Cost Allocation
If your team agrees to DDP (Delivered Duty Paid), your company—not the customer—is now covering freight, duties, and customs charges. If your margin isn’t built for that, it’s getting squeezed. - Cash Flow Implications
Depending on the Incoterm, you may be paying for services upfront while the buyer pays you later—creating a cash gap. ExWorks (EXW) vs. CIF (Cost, Insurance & Freight) can be the difference between collecting before or long after you’ve incurred costs. - Profit Leakage from Accessorials
Choosing a term without clearly defining handoffs (like FCA or FOB) can lead to finger-pointing when demurrage or detention fees show up. Someone pays—and often it’s you. - Insurance Coverage Gaps
If the risk passes at origin but the buyer hasn’t insured the goods yet (and you haven’t either), you’re at risk for loss with no coverage. - Customs and Compliance Risk
DDP puts the seller on the hook for customs clearance in a foreign country. One misstep, and penalties or delayed deliveries become your financial problem.
📉 My Wake-Up Call
I was sitting there looking at the payables run in shock.
What the heck was going on?
Why was the run so high? Our shipment count wasn’t up—so what happened?
I started digging into who we were paying, and the numbers were staggering. Customs brokers. Lots and lots of money. I pulled the shipment data, sure this had to be a mistake.
But no—every invoice was confirmed. As they should be. We audit before we pay. But I had to see for myself.
Then I saw it.
Ah-ha. We were paying way too early.
Some of these shipments weren’t even complete—why were we releasing funds so soon? I reached out to operations:
“Why are we paying these guys early? Don’t we have terms?”
Ops pushed back.
“They have to be paid before arrival or they won’t process the clearance.”
And I get it—it’s time-sensitive work.
But I also saw customs fees spiking—$10,000+ per shipment coming in from China.
A few months earlier, those same shipments cleared for $1,000.
That moment was a crash course in Incoterms.
Because no—we hadn’t changed how we bought or paid.
But the market changed, and now we were absorbing more liability and cost without realizing it.
We weren’t paying attention to Incoterms.
And suddenly, they were demanding our attention.
Incoterms don’t always dictate who pays, but cost usually follows liability.
✅ Tips for CFOs to Stay Ahead
- Review Incoterms during contract negotiation—not after something goes wrong.
- Ensure your pricing model aligns with the responsibilities defined by the term.
- Partner with logistics and sales teams to create default Incoterm policies per region or customer type.
- Check insurance policies against where your risk ends.
- Audit high-cost shipments where Incoterms could be misapplied or misunderstood.
Final Thought
Incoterms might not live in the finance department, but their consequences often show up in your ledger.
Understanding them isn’t about micromanaging logistics—it’s about protecting profit.
Want help aligning your Incoterms policy with your pricing and cash flow strategy?
Let’s talk.
ALL2S Consulting LLC helps finance teams spot operational blind spots before they become cash flow crises.
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