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November 25 2019

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52 The Journal of Commerce | November 25 2019 By Colin Barrett Q&A Q A Terms of recognition Our terms of sale are FOB origin, and we ship freight collect. Some of our larger customers don't want their carriers tied up counting cartons on our dock and require us to load their shipments under the condition of SL&C (shipper's load and count). By allowing our customer's carrier to sign SL&C, are we in fact negating the FOB origin terms? Or is there a possibility that we may get a deduction for a shortage completely sepa- rate from recognizing the sale? Sales recognition is the heart of the matter, especially the timing of the sale as related to meeting monthly/quarterly sales goals. We seal all SL&C loads and require proof of the seal being intact before entertaining a transportation-related deduction. However, this does not prevent deductions, and it has been suggested by our auditors that because our customer took a deduction, we may have to back out the sale in one month and reapply it in the next because the risk of loss reverted back to our company, negating the terms, FOB origin. Would changing our terms of sale to ex-works (EXW) mit- igate these issues? Could the sales then be recognized when our customer's orders are on our dock ready for shipment and the information transferred to them to request routing? This could allow us the opportunity to eliminate SL&C by not forcing all of the pickups into a tight time frame, namely the last three days of the month. THESE ARE THE problems that can arise when you try to make the cart pull the horse. I'm quite aware of the factors that drive management to book sales as early as possible, but as your question shows, this can translate to an operational nightmare. By chunking time up into artificial increments — calendar months and annual quarters — the managerial priority puts all kinds of pressure on operations to distort its practices into the kind of hurry-up activity you describe at "the last three days of the month," let alone the quar- ter, solely to meet equally artificial sales goals. That said, there's no ready answer to your problem. The SL&C terminology doesn't negate your FOB origin terms, but it does allow the possibility of chargebacks. Nor will switching to EXW terms help at all. FOB origin, under the Uniform Commercial Code, means title to the goods transfers to the buyer at the time goods are loaded aboard the carrier's vehicle at your dock. The Incoterm ex-works goes a step further, shifting title to the buyer at the time goods are made ready on your dock for pickup by the carrier. But neither relieves you of responsibility for dis- patching the correct quantity of goods, which is where the SL&C notation — and fact — comes into play. Since you're not allowing the carrier to verify your count, which is what SL&C means, there's only your word that you shipped the right number of items. Especially given your practice of insisting that outgoing loads be sealed and be delivered with a clear seal record, in cases of shortage, the facts appear to support the view that a shortage didn't result from some in-transit loss but rather from a short dispatch. That's a problem you're going to find pretty hard to overcome. Under both terms of sale, the buyer only takes title to what you turned over to the carrier. And when the evidence supports the view that any shortage occurred before that time…well, you get the point. For what it's worth, I think your auditors are being overly cautious. Sure, it's important to keep your books dead honest. Even so, the attitude you say your auditors are displaying strikes me as excessive. Most merchandisers get returns from buyers; don't you? And most also have shipments that arrive damaged; again, don't you? Both situations can require ex post facto sales adjustments, and the effect is no different when you have to adjust for shortages. What's more, how long do the auditors propose to wait before recording the sale? A month won't do; lots of shortage claims take longer than that to filter down. To be sure no adjustment will have to be made, you'd have to wait at least until payment is received from your buyer, and even then belated claims can materialize up to the end of the statute of limitations, which is several years. When does this become plain silly? Generally accepted accounting practices (GAAP) say to record the sale when your responsibility has ended, so do so based on your FOB origin terms. JOC Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455, phone (843) 559-1277, e-mail For compiled past columns and other transportation-related publications visit These are the problems that can arise when you try to make the cart pull the horse.

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