The difference between FOB Destination and FOB Origin.
- 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.