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How to Charge FOB Costs and Freight-in Costs For Sellers

Just in our last post, we have shown you some basic selling tips. Now we continue to show you what optional charges you need to care about as a smart seller and how to charge these costs in your business.

Optional Charges For Sellers: What are FOB Costs and Freight-in Costs

There are some optional charges for sellers in certain industries, while the sellers may not need to pay for them in other industries. One obvious example is for the shipping or freight industry. By definition, FOB (Free On Board) shipping point on sales agreement means that buyers shall pay for all the related shipping or transportation expenses. Therefore, if you buy something really heavy and FOB shipping is stated on sales agreement, you shall then be responsible fully for all shipping related charges. Do pay attention that, however, there is another shipping term 'FOB destination' which is just the opposite meaning. It means sellers shall pay for any transportation or shipping expenses at the time delivery is made.

How to Charge FOB Costs

So how to charge these FOB (Free On Board) costs? Many retailers do give buyers a chance to charge these transportation or shipping expenses via several types of third-party services. Taking credit card as an example, now the 5 most frequent-used types of credit cards are:

(i) Visa Card;
(ii) MasterCard;
(iii) American Express;
(iv) Diners Club Card;
(v) Discovery Card.

Payment process is quite simple. Firstly, customers are given certain amount of available credit limit by credit-card issuers or lenders, then customers can use approved plastic credit cards to charge for their purchases. As soon as sellers accept these credit cards, payment invoices are prepared automatically and then money transferred into accounts of those sellers.

If a seller offers a sale discount for his customer, such discount is then recorded as a selling expense directly to the seller. Do remember that merchant of the seller would also deduct fees under each sale transaction, and such deducted money is thus recorded as a selling expense for the seller. Do remember that there is something called freight-in (or also known as transportation-in). Normally, this is associated with freight or shipping costs for delivering particular merchandise item, and should be included together with the total costs of products sold.

How to Charge Freight-in Costs

So how to charge these freight-in costs? Many companies prefer including the freight-in or shipping cost together with the total costs of particular merchandise item, since this freight-in shall be just a small amount (relatively) of money. Buyers sometimes agree to pay for these freight-in or shipping costs, by reporting them as a raise in their accounts payable. Regarding these freight-in charges, if sellers suffered from customer returns because of incorrect items shipped, low quality or even damaged goods, then buyers should be granted appropriate refunds for credits back to their merchandise accounts or for cash payable. Any returned goods or purchased merchandise items should eventually be removed from the original inventory accounts monitored by a perpetual control system.

The above mentioned FOB (Free On Board) costs and freight-in costs are just two optional shipping or freight related charges for most sellers. We hope you can enjoy reading them. We will further go through other optional charges you need to care about as a smart seller and how to charge these optional costs on our next posts. Similarly, just like the other posts here, we hope you will enjoy reading them too.

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