Starting a transportation business is not an easy task. Running a smooth business involves specific skills and knowledge. You need to be aware of various terms that you might come across while you plan to begin one. You must have wondered what this FOB might be? Shipping invoice includes certain terms that are essential to understand for the growth of your business.
In this article, we will discuss the importance of FOB in an invoice. Check out this article to know more about this!
What is FOB Shipping Point?
FOB stands for Free On Board or Freight On Board is a transportation term that includes the price of the product from the seller’s end to a specific point and no further. FOB is a common agreement for international shipping that is often included in commercial invoices.
FOB Shipping point means that the seller transfers the ownership of the goods as soon as the product leaves the warehouse. The seller records the sale once the goods leave the seller’s place and henceforth the buyer is responsible for the product. The seller won’t be responsible for any damage or loss of the product.
What is FOB Destination?
Unlike the FOB shipping point, FOB destination means the ownership of the products transfers from the seller to the buyer once the product reaches the buyer’s location in good condition. Hence, FOB destination is much more beneficial to the buyer than the seller. FOB destination safeguards the buyer from undue losses that may happen while shipping. Same way, FOB shipping points are beneficial to the seller. It is mentioned in the invoice as FOB destination, for example, if the goods are shipped to California, then it would be written as FOB California.
What is the significance of FOB in Small Business Accounting?
FOB is a vital accounting tool for small business enterprises. It sets the terms of the agreement that decides who will be responsible for shipping cost and damaged shipment. FOB also records the point of sale. FOB decides the point of accounting of the sale. If it is a FOB shipping point then, the buyer would record it as sold once the product leaves the seller’s premises. The buyer will note it as inventory on the route and mark it as an asset even though it is not yet received by the buyer.
Hence, FOB is a significant accounting term for small businesses that will decide their expenses. Depending upon this either the seller or the buyer will be responsible for the risk of transportation, shipment damage, and even in cases like theft.
What is the difference between CIF and FOB?
CIF is another transportation term that is important for small business owners to understand. The term CIF means Cost, Insurance, and Freight. The basic difference between CIF and FOB is that it decides who will be responsible for the products in transit. CIF is a contract that states that the seller is responsible for the insurance and the other shipping charges of the product. Besides shipping costs and insurance charges, the seller is also responsible for the transportation of the goods to the nearest port and loading them onto the shipping vessel.
On the other hand, FOB works on either point of origin or destination depending upon its type. If the FOB mentioned in the invoice is the FOB shipping point then the product is the buyer’s responsibility when it leaves the warehouse. Whereas, in the case of FOB destination the product is the buyer’s responsibility only when it arrives at the buyer’s location.
Transport business is a profitable one only when you are aware of its details. This involves various terms that involve several obligations both on the seller’s and buyer’s end. This article will guide you through to understand more about FOB and its usage in a shipping invoice in detail.