Posted in Operations and Supply Chain Terms, Total Reads: 239
Definition: FOB Origin
FOB Origin means that the buyer assumes ownership at the time of carrier pickup, i.e., at the moment that the carrier signs the bill of loading, where FOB is free on board. So the buyer, in fact, becomes responsible for the transportation and the route, and must bear the risk of the same.
That is, if there is any loss or damage beyond this point, it becomes the buyer’s responsibility to file for claims. Thus, from the point of view of the seller, once the product is picked up, the sale is complete.
The F.O.B condition of the agreement gives the information about that point in the supply chain, up to which the seller has responsibility of the product, or beyond which the seller transfers ownership to the buyer, and the buyer becomes responsible for the same.
The purchase terms between a vendor and a supplier should essentially consist of an F. O. B clause. The F.O.B may be of two types- F.O.B origin or F.O.B destination. The F.O.B term of the agreement is used to determine the responsibility and also the basis of payment for the freight charges.
This is unlike the F.O.B destination, which means that it is the seller’s responsibility to deliver the product to the buyer. Unless the product has been delivered, the sale has not taken place. It takes place only at the time of delivery of the product.
The F.O.B term of the agreement is also used for accounting purposes, to determine when the company recognizes the revenue. For an F.O.B origin product, the revenue is recognized once the product has been handed over to the carrier.