When you dip your toe into the world of invoicing, you will find that there are several codes and acronyms that you are unfamiliar with. These codes exist to streamline your payment and tracking processes.
For example, [FOB stands for ‘free on board.’ This term is common for shipping and delivering goods for international or domestic transactions. It defines the point in the supply chain where the seller is no longer liable for the shipment and that liability now falls on the buyer.
It is a contractual agreement between buyers and sellers which stipulates that the seller has agreed to deliver goods to the buyer’s chosen port of destination at no extra cost. This type of agreement usually applies when purchasing items from overseas suppliers, such as deliveries made by air, rail, or ship.
For automotive businesses that need to import parts for their garage, or export parts for clients based overseas, this is a critical section to include on your invoice. At Invoice Ninja we can provide you with an automotive repair invoice template or auto part invoice template which will generate a legal FOB in accordance with your business’s invoicing needs.
Types of Shipping Terms
There are two main types of shipping terms related to FOB: FOB Origin (FOB Source) and FOB Destination (FOB Seller). Each type determines who is responsible for transport costs depending on where the item originates from or the final shipping destination. Let’s break down the differences between FOB Origin and FOB Destination.
Transport costs are paid by the buyer whether the goods are transported via the seller’s own transport method or by a third party. The buyer assumes all responsibility for risks and costs accrued once goods have been loaded onto a ship or vehicle at an agreed port or place of origin.
With an FOB destination agreement, buyers are not liable for freight charges. The seller pays all transport costs until they reach their final destination. Furthermore, any risk associated with damage or loss is passed onto the buyer once the goods have arrived at their assigned port of delivery.
What Are the Benefits of Fob Shipping Agreements?
An FOB agreement allows buyers to take advantage of better buying prices as they are not responsible for covering transport expenses. As a result, they are granted more flexibility when negotiating pricing terms with sellers across the globe.
This agreement offers them flexibility to choose their own freight forwarder, shipping carrier, and other transportation-related services, which can result in faster delivery times or higher levels of care for fragile goods. The buyer can also track the shipment and follow the exact location of the goods during transit, which can help in reducing any delays or losses.
When the terms of responsibility are clearly laid out in the FOB agreement, FOB shipping offers a high level of transparency to both the seller and the buyer.
As you begin your journey as a freelancer or small business owner, you will run into many learning opportunities (curious about what a PO number is on an invoice? We’ve got you covered). An FOB is a critical jumping off point as you familiarize yourself with invoicing.
FOBs determine who pays transportation expenses associated with overseas transactions. By understanding how FOBs affect invoices, you can adjust your costs and prices for the associated shipping costs, while buyers can also negotiate prices in the same way.
Overall, FOB means that both parties in any transaction are aware from the outset how products will be shipped, the cost of this shipping, and the responsibilities of each party throughout the process. The terminology shouldn’t be daunting, and at Invoice Ninja, we can incorporate these processes seamlessly into your invoices!