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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
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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? Nwebb 9/2014
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. Nwebb 9/2014
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. Nwebb 9/2014
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. • 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. 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: Nwebb 9/2014
CSD Freight Terms Nwebb 9/2014
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. Nwebb 9/2014
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%. Nwebb 9/2014
