Freight on Board (FOB) Invoice Explained + Examples [2024]

If your business is currently working with shipments, you will need to start using a FOB invoice.

A FOB invoice is an agreement you, as a seller, can make with a buyer regarding the shipment process. It’s a document that states which party takes responsibility for shipment payments.

If you’d like to know more about the FOB invoice and learn how to create one easily, you’ve come to the right place. This detailed article will tell you all about this important document and show you how to make it with our free invoice templates in a snap!

Key Takeaways

• FOB stands for Freight (or Free) on Board. It is a legal agreement between a buyer and seller that states which party takes responsibility during the shipping process.
• FOB invoices are important because they let you track every single sale you have made.
• The three main parts of a Freight on Board are collect, prepaid, and add and prepaid and collect. These describe a set of different shipping options that a seller can use.
• CIF is another shipping term that makes the seller responsible for the entire shipping process. It stands for Cost, Insurance, and Freight.
• The easiest way to make a FOB invoice is to use an online invoice generator.

What Does FOB Stand for in an Invoice?

Freight on Board or Free on Board (FOB) is a shipment term coined by the ICC (International Chamber of Commerce).It specifies the turning point where the responsibility for the shipped goods goes from the seller to the buyer.

FOB originally used to name any form of sea transportation, and today it’s used for any mode of transportation.

Besides that, the letter “F” of the abbreviation, which can either be freight or free, can make people confused. Even though “free” is part of the abbreviation, it doesn’t apply to the product’s shipping cost. All it does is explain who has responsibility over a product while it is still in transit.

With that in mind, knowing how to differentiate between FOB shipping and destination is important. FOB shipping point means that you, as a seller, take responsibility for the products until they ship to the buyer. On the other hand, FOB destination means that your responsibility for and ownership of the goods transfers when the product reaches the customer.

Why is FOB Important?

FOB is especially important for small businesses because it lets you create shipping conditions.With it, you can specify who has to pay the shipping price and whether the buyer or seller will have to take care of any products that can be lost or damaged during the shipping process.

In accounting, a FOB invoice lets you keep track of every sale and product shipping method.So, if a product you’ve shipped has a FOB shipping point, the accounting system will track it from the moment the shipment leaves your company’s warehouse.

3 Key Components of FOB

Besides specifying who has to pay the shipping price, the FOB invoice price includes the loading of products, marine freight, insurance, etc. The FOB invoice price can be collected in several ways, which is predetermined with some of the following three modifiers:

• Freight collect. The buyer pays for the transportation costs.
• Freight prepaid and add. The seller pays for the transportation in advance, but they are reimbursed for the shipping costs by adding them to the FOB invoice.
• Freight prepaid and allow. Again, the seller pays for the transportation charges in advance, but they have the option to “allow” or incorporate shipping costs in the invoice if they want to.

FOB Shipping Point

The FOB shipping point (also referred to as the FOB origin) is when the shipping process title is transferred from the seller to the buyer once the product has reached the location where the buyer will pick it up.

It is also the point where the BoL (Bill of Lading) is signed. The BoL is a document that the selected transportation company has to issue wand that mentions the product and its type in detail, the number of products in the package, and the location of the shipping point.

FOB delivery point is considered a set of limitations that both the seller and buyer must agree with.This happens because the products’ liability will vary once they reach the seller’s delivery point.

At this point, the seller has no responsibility for any damages or defects. Everything, including additional custom payments and taxes, is now in the buyer’s hands.

FOB Destination

The FOB Destination (also referred to as FOB delivered) is when the products get transferred from the seller to the buyer at the buyer’s cargo loading zone. In this case, the seller is completely responsible for any additional costs that may occur during the shipping process.

Therefore, if by any chance the product does not reach the buyer (or it is damaged once it arrives), the seller needs to provide reimbursement for the amount or ship another product.

In a FOB destination, the seller is responsible for paying the shipping costs, product insurance, and tax costs.

In accounting, the FOB destination occurs when a sale is finished. Once the sale is made, the accountant has to track and note down each receipt for both parties. When the accountant sees the FOB destination, they will know that the sale has happened and when it arrives at the shipping destination.

What is CIF?

Another agreement that can be made between the buyer and seller is CIF.

CIF stands for cost, insurance, and freight and is another form of agreement you can use between you and the buyer.

If you decide to use the CIF agreement instead of FOB, you, as a seller, will be responsible for the whole transportation process, including loading the products safely into the transportation method, as well as paying the product insurance.

Both FOB and CIF are legal terminologies that are used when a product is shipped from a seller to a buyer. The biggest difference between the two is who takes responsibility for products currently in transit.

For more differences, check out the table below:

How to Make a FOB Invoice the Easy Way

Now that you know everything about FOB invoices, you are probably wondering how to create these important documents.

You can either make a FOB or shipping invoice with programs like Word or Excel, but that process is quite time-consuming and difficult. That’s why you should opt for a solution such as an online invoice generator.

With an online generator, making invoices is a piece of cake. It’s super easy to use, it’s efficient, and most importantly, it isn’t time-consuming. Here’s how it works:

1. Open the online invoice generator
2. Fill in the blanks
3. Review and download your document

FOB Invoice FAQ

#1. What does FOB stand for in cost?

FOB stands for the price of products and services that are being exported to a person who doesn’t live in the same country. The FOB cost includes the product value, the price of the transportation service, as well as any additional tax payments.

#2. How is FOB calculated?

To calculate FOB value, all you have to do is add together the shipping, transport, and warehousing costs, as well as any additional costs.

#3. Who pays the freight on a FOB origin basis?

The seller is usually the one who takes on responsibility for the product and shipping costs until it reaches the shipping ports. After that, the buyer is responsible for any additional payments that can occur after the shopping port.

#4. What are FOB conditions for import and export?

The main conditions for FOB import and export are that the supplier of the shipment takes on responsibility until the products are loaded onto the cargo vessel. In this case, the supplier has to pay for the transportation of the shipment.

Final Thoughts

Although creating a FOB invoice initially seems tricky, using our free invoice-building software can do the job for you. With our online invoice generator, you can create an invoice in a few easy steps, and it’ll only take you a minute!

Our service lets you preview each step of the invoice-building process and create as many invoices as you need. Check it out, and feel free to contact us for any information regarding invoices, or other documents, such as the 1099 MISC or W-2 form.