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What is the difference between FOB Destination and FOB Origin?

Overview

The difference between FOB Destination and FOB Origin.

Environment

Avalara AvaTax

Resolution

  •  FOB means Freight-On-Board
    • This determines when the buyer takes ownership in the product being purchased. 
    • FOB origin means that the buyer takes ownership at the seller's location and is responsible for it at that point.
      • Therefore, the sale is complete once the product is picked up by the buyer. 
    • FOB destination means that the seller is responsible for delivering the product to the buyer.
      • The sale occurs at the time of delivery. 
  • Usually this determines who is responsible for paying for shipping and the potential damage that occurs during shipment.
    • For instance, if a plane crashes with $10,000,000 in product destined for a customer, who is responsible? Was the sale already consummated or not?
  • This also can affect when a company recognises revenue.
    • The product may be delivered on a different day than it is available for shipment.
    • Thus, the day that the product actually is sold would depend on if it was FOB origin or FOB destination.
    • If material still is enroute to a customer who uses FOB destination, that material has not yet been sold and is still included in the Finished Goods inventory; this must be known when inventory is being counted.