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What Is CFR In Accounting

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Last editedOct 20212 min read

Almost any merchant is now able to operate as a truly global business. The shift to digital communications and the switch to online commerce have meant that, for many products and items, it is as easy to sell to someone on the other side of the world as it is to deliver to another city in the UK. This flexibility has enabled many merchants to boost the cash flow moving through their business and drive profits higher, but the opportunity does come with a few added responsibilities, and one of these is dealing with the law surrounding foreign trade contracts. CFR is a part of this law, and it stands for “cost and freight”. 

CFR meaning

CFR is a legal term that crops up in contracts dealing with goods being shifted from one country to another. It only applies to goods that are being shifted by sea or along inland waterways. It means that the seller in any particular transaction carries the responsibility of arranging for the goods in question to be shipped by sea, and also has to provide the buyer with the documents needed to obtain the goods from the carrier when they reach the specified destination port. A CFR sale means that the seller does not have the responsibility for insuring the goods against loss or damage during transit. 

Understanding CFR

Contracts for sales that involve goods being transported to other countries are often full of abbreviations of trade terms that need to be understood in order for any merchant using them to know exactly what they are signing up for. The terms in question can deal with issues such as where and when the goods will be delivered, how payment will be made and how the risk of loss is carried by the buyer rather than the seller, as is the case with CFR clauses.  

Once the two parties involved in a transaction have agreed to include CFR in the deal, the seller has to arrange and cover the costs of shifting the goods in question to a specified port. Having agreed to CFR, the seller is contractually obliged to clear the goods for transport, deliver them to the ship that will be carrying them and ensure they are then loaded onto that ship. As soon as the goods have been loaded, the risk of loss or damage switches to being the buyer’s responsibility – it should be noted that this switch takes place before the journey of the ship in question actually begins. The inclusion of CFR frees the seller from the responsibility of arranging insurance for the cargo.   

CFR incoterms

Anyone dealing with CFR clauses may also come across the word “incoterms”. This abbreviation is a reference to the fact that CFR is an International Commercial Term. The International Chamber of Commerce (ICC) publishes a set of incoterms, such as CFR, that create a framework of rules and regulations on which standard foreign trade contracts can be based. The incoterms are regularly updated. They are designed to create clarity and certainty, and to make clear, at the time a contract is agreed, exactly what the responsibilities of the buyer and seller are. Other examples include: 

  • FAS – Free alongside ship

  • FOB – Free on board

  • CIF – Cost insurance and freight    

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If you’re interested in finding out more about CFR and other incoterms that apply to foreign trading, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.

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