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Payment Terms and Definitions

fashion vendor and manufacturing payment terms

Today, we’re talking about specific payment terminology you should know while building your brand and collection.

Understanding payment terms and their relationship to production costs is critical for accurate accounting, future order planning, and vendor comparisons. In addition, you have more control and leverage when you understand how your supply chain works with each and every vendor.

You also don’t want to look like a total newbie in a meeting with a vendor. Am I right?!

Maybe you’re new to this but still ready to bring your idea to life. Perhaps you’re even prepared to get on a call and talk business, but you still don’t feel comfortable talking terminology.

Take a page from our book and read up on the top terms you need to know related to cost, pricing and payments. Knowing these will help separate you from the newbies and move you closer to becoming a founding maven in your field.

Fashion brands and teams use these words as part of their everyday conversation. Check out the list below so you can get a leg up on learning the language and gain confidence talking with supply chain terminology.

Incoterm: internationally recognized terms for selling goods that define the responsibilities of sellers and buyers such as who is paying for what, shipping, insurance, documentation, customs clearance, and any other important information related to the order.

Freight on Board (FOB): Stands for Freight On Board or Free On Board. FOB terms mean the prices include the goods and getting them to a port of departure and onto the vessel to travel. It does not cover shipping costs via vessel transportation, duties, or getting the final goods to your warehouse.

Delivered Duty Paid (DDP): A costing and logistics incoterm, often referred to as just DDP, which stands for Delivered Duty Paid. This means your factory is including the cost of shipping and getting these goods to your warehouse within the cost they pass to you. This is better for understanding your total garment costs and the total price you pay for your finished goods.

Landed Duty Paid (LDP): A costing and logistics incoterm, often referred to as just LDP, which stands for Landed Duty Paid. Using LDP means your factory includes the cost of shipping and getting these goods to your local port within the price they pass to you. These terms do not usually include the final cost of moving the goods from the port to your warehouse.

Packing List (PL): A complete and detailed account of all the contents within your shipment, separated by style and size.

Freight Forwarder (FF): an agency that specializes in the transportation of cargo from one point to another.

Agent: A widely used term in the industry, this generally refers to someone acting as a connection between two different parties. For example, it may refer to individuals working with your factory, freight forwarder, or textile mills or refer to a company doing something similar.

Proforma Invoice (PI): A preliminary bill of sale sent to both buyers and sellers ahead of the final delivery of goods. This outlines precisely what is being purchased to ensure expectations are met. This may contain SKUs, descriptions of items, colors, sizes, units, shipping costs, etc.

Now you’ve got some more info on what your manufacturing partner is talking about whether it’s incoterm, PI or FOB.

Need help getting a cost quote from a factory or placing your first PO? Check out our Costing Quote Template and Purchase Order Template!



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