FOB means “free on board.” If there is a shipment that has been designated as FOB (which is the location of the seller), then when the shipment leaves the warehouse of the seller, the seller will record the sale as being complete. At this point, the buyer is the owner of the products that are en route to the warehouse and is responsible for paying all delivery charges incurred. What this also means is if there is a pallet that is damaged or lost during the shipment process, it is the buyer that is responsible for filing a claim for reimbursement, not the seller. That’s because the shipment became the responsibility of the buyer right away upon departure.

FOB Destination 

While there is more information about this shipment method available in the Incoterms 2020: Introduction for Traders, it’s also possible to learn more here. It is in the best interest of the buyer to have shipping terms designated to FOB – the buyer’s location, or FOB Destination. This means that if there is a buyer that is in Minneapolis Minnesota, the terms of the shipment designation would read “FOB Minneapolis.” This means that when the purchased shipment arrives in good condition, the buyer accepts it and considers the items as their inventory. Unlike the methods mentioned above, the sale is not considered complete until this occurs.

Accounting Relevance

Even though the shipping costs are determined when the buyer claims ownership of a certain order of goods, the accounting system of the company will also be impacted. If there is a shipment that is sent as FOB Shipping Point, which refers to the seller’s warehouse, the sale will be complete when the truck taking the goods to the new location pulls away from the loading dock. It is noted, at this point, in the business’s accounting system as a “complete sale.” However, on the other hand, the buyer must put a note in its accounting system that states the inventory is in transit, According to realtimecampaign.com. Even though the shipment has not yet shown up, the inventory is considered an asset in the buyer’s books. All this can be handled through the shipper, such as CSA Transportation.

Choosing the Best Option

If a buyer is negotiating with a seller via a website or another means, who is located a long way from one another, it is in the best interest of the buyer to ensure the seller is the one that is responsible for the shipment delivery. Also, when selling to a buyer overseas, it’s in the best interest of the buyer to ensure that they become responsible as soon as the products leave the loading dock. While this may be confusing at first, it is these terms and shipping designations that help safeguard the buyer or the seller, depending on location, company, and products being shipped. For those who have more questions about this shipping option, they should contact the professionals.

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