Define: F.O.B. Destination Freight Prepaid and Allowed
F.O.B. Destination Freight Prepaid and Allowed is a shipping term in a supply of goods agreement specifying that the seller retains title and risk of loss until goods reach the buyer's destination, and the seller pays and bears the freight cost outright, with no reimbursement expected from the buyer.
Legal accuracy standard set & glossary spot-checked by Imad Mohammed Nazar , Skadden-trained M&A lawyer, Legal Engineer at GenieAI
What F.O.B. Destination Freight Prepaid and Allowed Means in a Contract
When a contract states goods are sold F.O.B. Destination Freight Prepaid and Allowed, it establishes two linked but distinct obligations for the seller. First, because the term is F.O.B. Destination rather than F.O.B. Shipping Point, the seller retains ownership and bears the risk of loss or damage to the goods until they physically arrive at the buyer's named destination. Second, the word Allowed signals that the seller pays the freight carrier and absorbs that cost as its own expense, rather than billing it back to the buyer or deducting it from an invoice.
This combination differs from F.O.B. Destination Freight Collect, where the buyer pays the carrier directly, and from Freight Prepaid but not Allowed, where the seller pays the carrier upfront but later recovers the charge from the buyer through a separate line item. Under Freight Prepaid and Allowed, the buyer's purchase price is treated as fully inclusive of delivery, and the seller has no contractual right to claw back transportation costs after the fact.
How F.O.B. Destination Freight Prepaid and Allowed Is Defined or Measured
The practical measurement of this term centers on two events: the transfer of risk and the allocation of cost. Risk transfer is measured by the moment of delivery to the specified destination, not by the moment goods leave the seller's warehouse or factory. If goods are damaged, lost, or destroyed in transit, the seller bears that loss under the contract because title has not yet passed to the buyer.
Cost allocation is measured by who ultimately absorbs the freight charge on the seller's books. Because the freight is both prepaid and allowed, accounting records typically show the shipping cost as a seller expense, often reducing the seller's net revenue rather than appearing as a reimbursable disbursement from the buyer. Parties sometimes memorialize this by referencing standard trade definitions or a Relevant Circumstances
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