Incoterms (International Commercial Terms) are globally recognized rules that define the responsibilities of buyers and sellers in international trade. These terms are essential for ensuring clarity in commercial contracts, reducing the risk of misunderstandings about delivery responsibilities, costs, and ownership transfer points. Incoterms in SAP are maintained as part of the master data and are used in transactions to streamline global trade processes.
What Are Incoterms in SAP?
Incoterms are standardized trade terms developed by the International Chamber of Commerce (ICC). They define the delivery obligations, costs, and risks shared between buyers and sellers in a transaction.
- Purpose:
- Provide clear rules for interpreting trade terms.
- Reduce disputes and confusion in international sales contracts.
- Specify the responsibilities for transportation, insurance, and customs clearance.
- Application in SAP:
- Incoterms are configured in SAP using Transaction OVSG or through the menu path: Logistics > Sales and Distribution > Master Data > Others > Incoterms.
- Once set, they can be applied automatically as defaults for customers in sales documents but remain editable for specific transactions.
Components of Incoterms
| Field | Description |
|---|---|
| Incoterms | The 3-character key representing the specific trade term. Examples include CFR, CIF, FOB, EXW, and DDP. |
| Description | A textual explanation of the Incoterms. Examples include “Costs and Freight” for CFR or “Delivered Duty Paid” for DDP. |
| Location Mandatory | A checkbox that indicates whether specifying a location is required for the Incoterms. |
- Incoterms Key:
- A 3-character acronym representing the specific delivery conditions.
- Example: FOB (Free on Board), CFR (Cost and Freight).
- Location Mandatory:
- Indicates whether a location or place name must be specified.
- Example: For FOB, a port of departure (e.g., “FOB New York”) must be entered to indicate where the ownership of goods transfers to the buyer.
Key Incoterms in SAP
| Incoterms Key | Description | Location Mandatory |
|---|---|---|
| CFR | Costs and Freight | Yes |
| CIF | Costs, Insurance & Freight | Yes |
| FOB | Free on Board | Yes |
| EXW | From Plant | No |
| DDP | Delivered Duty Paid | Yes |
| DAP | Delivered at Place | Yes |
How SAP Uses Incoterms
In the SAP sales order example, CPT (Carriage Paid To) is the Incoterm used, specifying that the seller is responsible for arranging and paying for transport to Dresden, the destination location. However, the buyer assumes risk once the goods are handed over to the carrier.
- Incoterms like CPT define clear delivery terms, outlining cost-sharing and risk responsibilities between the buyer and seller.
- These terms are automatically populated from the customer master but can be adjusted in the sales order. Using Incoterms ensures clarity, reduces disputes, and aligns transactions with international trade standards for smoother logistics and financial compliance.
How CPT Appears in the Sales Order
- Payment Terms and Incoterms Field:
- Field “Payment Terms”: Shows the payment terms (e.g., ZB02 – 8 days, 14%/2%).
- Field “Incoterms”: Indicates CPT Dresden, where:
- CPT is the Incoterm.
- Dresden specifies the location (destination) where the carriage is paid to by the seller.
- Significance:
- By specifying CPT, the seller commits to arranging transport to Dresden while transferring risk to the buyer when goods are handed over to the carrier.
- This is an example of a scenario where the seller ensures delivery up to a specified point but does not take on risk beyond that.
Conclusion
Incoterms in SAP provide a robust framework for managing international trade agreements. By clearly defining responsibilities, costs, and risks, businesses can operate more efficiently and avoid disputes in global transactions. Using Transaction OVSG, companies can configure and apply Incoterms seamlessly across sales processes, ensuring compliance with customer and legal requirements.
This configuration not only streamlines operations but also ensures that critical trade terms are adhered to, providing a foundation for smooth international trade.