Magazine article Business Credit

The Importance of Shipping Terms

Magazine article Business Credit

The Importance of Shipping Terms

Article excerpt

Legal jargon

Shipping terms are more than delivery instructions. Shipping terms also assign risk in the event of delivery problems as the goods are transported to the customer.

When a customer purchases goods for delivery at a later date, how does the credit professional respond when the customer refuses to pay because the goods were delivered late, the goods were damaged in shipment or there was some other problem with delivery? To adequately respond to these claims, a credit professional will need to understand the contract's shipping terms. Shipping terms are more than delivery instructions. Shipping terms also assign risk in the event of delivery problems as the goods are transported to the customer.

The most important thing to remember is that risk passes when the goods are deemed delivered. To understand when delivery occurs, you first need to know whether it is a shipment contract or a destination contract. Where unclear, the presumption is that it is a shipment contract.

Shipment Contract

The risk of loss passes on delivery to the carrier in shipment contracts. If the contract calls for the goods to be shipped, it is a shipment contract, and delivery of the goods to a carrier is delivery to the buyer. Under a shipment contract, the duties of the seller are to deliver the goods to the carrier, make a reasonable contract of shipment, notify the buyer and send any required documents.

Destination Contract

The risk of loss passes on tender of delivery at the destination in destination contracts. If the contract specifies delivery at a specific destination other than seller's factory or warehouse, it is a destination contract, and the seller must deliver the goods to the buyer at the specified destination. The duties of a seller under a destination contract are to deliver the goods to the specific destination and hold the goods there for the buyer for a reasonable time, if necessary.

Delivery terms show whether it is a shipment contract or a destination contract. The following are some common delivery terms.

* FOB (place): If the place is the place of shipment (e.g. FOB factory), this is a shipment contract, and seller only bears the expense and risk of putting the goods in the possession of the carrier. …

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