Free on Board is one of the commonly used fob shipping point terms, which means that the legal title to the goods remains with the Supplier until the goods reach the buyer’s location. We know there’s no one-size-fits-all solution to cost-efficient shipping.
Who Pays for Shipping in FOB Shipping Point?
In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.
After the title is transferred, the seller’s responsibility ends, and it falls to the buyer to ensure their goods reach their final destination promptly and in sound condition. “FOB origin,” which is a synonym for “FOB shipping point” indicates that the sale completes at the seller’s shipping dock. As a result, the buyer must cater for any liability incurred during transport and for freight costs. In this situation, the billing staff must be aware of the new delivery terms so that it does not bill freight charges to the buyer. From a practical perspective, recognition of receipt is instead completed at the receiving dock of the buyer.
What Does FOB Mean on an Invoice? | Shipping Invoice Definitions
Note that the transport costs do not just cover the distance between the shipping point and a port in the country you are shipping them to . The increase in shipping costs is caused by the fact that the goods are being shipped a longer distance. The seller is responsible for all expenses until the goods are loaded onto the vessel at the port of shipment. The buyer is charge of all costs after the goods are loaded onto the vessel at the port of shipment. In “FOB destination”, transfer happens when the cargo is retrieved from the transport on arriving at the buyer’s location.
For example, if a company was shipping its goods to New York City, it would be written out as FOB New York. FOB on an invoice stands for Free On Board or Freight On Board and refers to the point after which a business shipping products to a buyer is no longer responsible for the items. FOB is always followed by a designation to indicate when the seller’s obligation ends.
THE EFFECT OF INTERNATIONAL TRADE ON FOB SHIPPING
In addition to the cost of overseas shipping, you must also keep the transport costs in mind. The timing difference from shipping terms is typically just a few days and unlikely to affect periodic financial statements. However, a CPA preparing GAAP financial statements will put in more scrutiny.