Canyons School District
Freight Terms Identified
Purchase Orders with Incomplete
or Non-existent Freight Terms
• If freight terms are not stated on the purchase
order they are left to interpretation.
• Who owns freight during transportation?
• At what point does title of the
merchandise transfer to the District and
become accounted for?
• Who makes a freight claim if items are
damaged?
• Who pays freight charges?
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F.O.B. Defined
• Does F.O.B. mean you are getting your freight free of
charge?
• No, while the term F.O.B. means “free on board” it
does not mean the freight charges are free.
Free on Board refers to when the title of the
shipment transfers from buyer to seller.
F.O.B. Origin (also known as F.O.B. shipping point) means that
the title to the merchandise passes at the time of pick-up.
F.O.B. Destination means that the title of the merchandise
passes at time and place of delivery.
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Payment Terms Identified
• Prepaid and Allowed – Shipper bears the
responsibility to pay.
• Collect – Organization purchasing the merchandise is
responsible for payment.
– The Buyer typically provides the shipper with an
account number to ship freight collect.
• Pre-pay and Add – Shipper pays the freight and adds
the amount to the invoice.
• Additional terms not used as often.
– Third Party- someone else is paying the freight.
– Prepaid/Collect Beyond – Shipper pays a portion, balance
due from the organization purchasing the merchandise.
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Freight Terms on Purchase Order
The purchase order is the legal document (contract) with the supplier.
Freight is a negotiable item that needs to be clarified on the contract.
The terms that must be stated on the P.O. are
either “F.O.B. Origin” or “F.O.B. Destination.”
In addition, a method of payment must follow one of
these designations, “Collect, Prepaid and added or
Prepaid and allowed.”
These two items clarify the following:
–
–
–
–
Determines who claims freight loss or damage.
Determines when Canyons needs to account for assets.
Determines who pays freight.
More critical if the District was not tax exempt.
• Sales tax rate applies and paid to the government agency at geographical
location of title passing.
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CSD Freight Terms
Freight Terms
CSD Takes
Title
CSD Responsibilities
F.O.B. Origin, Freight Collect
At point of
Origin/shipping
point/factory
F.O.B. Origin, Freight Prepaid and Added
At point of
Origin/shipping
point/factory
F.O.B. Origin, Freight Prepaid and Allowed
At point of
Origin/shipping
point/factory
At Destination
Pay freight –provide instructions
and account number on P.O.
Owns goods in transit.
Files claims for loss, damage or
overcharge.
Pays freight charges to supplier
that are billed on the invoice.
Owns goods in transit.
Files claims for loss, damage or
overcharge.
Owns goods in transit.
Files claims for loss, damage or
overcharge.
Pays freight-provide instructions
and account number on P.O.
F.O.B. Destination, freight collect.
***NOTE*** Supplier must list CSD purchase order
number in the reference field on the way bill or the
supplier will be responsible for the freight payment.
F.O.B. Destination, Freight Prepaid and Added
At Destination
F.O.B. Destination, Freight Prepaid and Allowed
At Destination
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Bears freight charges, pays
charges that are billed on the
invoice by supplier.
Supplier Responsibilities
Pays initial freight and
adds freight charges to the
invoice.
Pays freight
Bears freight charges
Owns goods in transit.
Files claims for loss or damage.
Pays freight
Adds freight to invoice
Owns goods in transit
Files claims for loss or damage.
Pays freight
Bears freight
Owns goods in transit
Files claims for loss or damage.
Freight Savings
• Imperative to state complete freight terms on every purchase
order.
– Added costs to return damaged freight.
– Employee time to process freight claims.
– Understand who owns the inventory during transport (accounting for
material in transit).
• When can supplier recognize sell, when does buyer record the inventory.
– Shipping and handling charges are typically quoted at approximately
16% of the total purchase price.
• Example – Purchase a $500.00 calculator that fits in a small box and
weighs 3 lbs. At 15%, shipping and handling charges would cost $80.00.
The actual freight charges should be around $7.00. The district could
realize a savings or cost avoidance of $73.00 by shipping it against our
freight account.
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Summary
• Freight terms must be identified on all P.O.’s.
• Eliminates question of responsibility for payment, filing
claims and title of goods transfer of ownership.
• To list only F.O.B. Destination is not enough.
• In most cases, you will use F.O.B. Destination, freight
prepaid and allowed if the supplier is paying the freight.
- or F.O.B. Destination, freight prepaid and added if they
are charging you freight. If you know how
much they
are charging, add the amount.
• Estimated cost savings = On average Purchasing saves
approximately 50%.
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