Ex Works is a shipping arrangement in international trade where a seller makes goods available to a buyer, who then pays for transport costs. Though in line with What is FOB Shipping Point the accounting treatment mentioned above, it is worth explicitly calling out that FOB shipping point and FOB destination transfer ownership at different times.

How effective products move from the vendor to the customer depends on how well both sides understand free on board . FOB conditions may affect inventory, shipping, and insurance expenses, regardless of whether the transfer of products happens domestically or internationally.

What is FOB Destination?

Cost, Insurance, Freight puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier. Once the delivery is unloaded in the receiving country, responsibility is transferred to you. Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the buyer. With FOB shipping point, ownership of goods is transferred to the buyer once they leave the supplier’s shipping point. You purchase goods from a supplier in China and agree to FOB shipping terms. The next three steps of the process are carried out at the supplier’s expense. Therefore, the business can save money, in case the goods get damaged or lost in transit.

Also, under these terms, the buyer is responsible for the cost of shipping the product to its facility. FOB is important for small business accounting because it sets the terms of the shipping agreement. FOB determines whether the buyer or the seller pays the shipping costs and who is responsible if the shipment is damaged, lost or stolen. This means that the buyer pays for all the shipping and freight costs as soon as the goods are delivered.

The Disadvantages of FOB for Buyer and Seller

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This is usually the seller’s loading dock, delivery truck, or postage office. As soon as the seller brings the goods to the point of shipment, the legal title of those goods passes to the buyer and the seller is no longer responsible for the goods during delivery. If the carrier damages the package, the buyer can’t come after the seller because the title has already transferred. The seller’s only responsibility is to bring the package to the loading dock or delivery truck.