Purchasing goods and services online from an e-commerce website starts when you make an order and ends when you receive goods or services.
Unlike over-the-counter purchases, where you pay for and receive your goods or services on the spot, online purchases involve many processes like verification of billing and shipping addresses, payment method, and delivery.
The online transaction process may last for up to 4 weeks, and this is where ARO is used to define that period. The understanding of the term ARO meaning in shipping might be vital for each party of the deal.
ARO in shipping is an acronym for ‘After Receipt of Order.’ It refers to the number of days a customer waits before receiving goods or services ordered. For sellers, ARO refers to the period within which the buyer should make payment for goods or services before they are delivered. And in payment, ARO means the payment process for your order begins immediately after the company receives your order and not after you receive the goods or services.
Since there are many terms used in e-commerce, such as billing, clearance, and ARO. This post highlights the various terms and phrases used alongside ARO in shipping and its advantages and disadvantages.
Lead Time in ARO
The period starting from the time the seller receives an order and the time of delivery is called lead time. All the transaction processes which take place over this period, such as verification of addresses and payment fall within the lead time.
Suppose you want to order electronics from an e-commerce website. You start by filling an order where you select the products and choose your preferred payment options and shipping method.
When the company receives your order, the lead time for your purchase begins. During this time, you will pay for the goods before they are delivered to your address. The lead time ends when you acknowledge receipt of the goods.
ARO 8 Weeks
Some manufacturers and distributors do not have inventories. When a customer makes an order, its delivery is affected fast if the materials required are available. Orders whose materials are not available to take longer to be delivered.
The lead time for an order to be delivered when a distributor lacks inventory is about eight weeks, hence the name ARO eight weeks.
The lead time differs from company to company and region to region. In most US-based companies, the allowed lead time ranges from 7-9 weeks, while in other countries like China, it may go up to 20 weeks.
Bill of Lading
After payment is complete, the seller ships the goods and sends them to the customer’s shipping address. A document showing the type of goods and their quantities is given to the crew transporting the cargo to give to the customer on delivery. This document is called a bill of lading.
For already manufactured goods, the lead time is relatively short. If a company affects an order from a customer within seven working days, the lead time is equivalent to one week, called ARO week.
ARO Delivery Date
When a customer sends an order to a company, the company presents an agreement where the buyer agrees to make payment within a given period. The customer should complete the payment before the delivery date.
Suppose you make an order for software from a company on 1st March 2022 and sign an agreement that you will complete payment in 21 days. The 21st day from the day the company received your order (March 22nd) is the ARO delivery date for your transaction.
On the ARO delivery date, the buying-selling process should be complete, and the customer should have the order delivered. A summary of the transaction process:
|Invoice Number||Invoice Date||Shipping Date||Payment period|
|28622||1-3-22||22-3-22||ARO 21 Days|
Is ARO the Same as After Receipt Payment?
ARO payment is different from after receipt payment (ARP). In ARO, the shipping process can start before the customer finalizes the payment as long as the payment is complete by the ARO delivery date.
Shipping for ‘after receipt payment’ terms start when the seller has received full payment for the merchandise.
ARO Payment: Is it Risky?
In ARO, there is some risk that a seller and a buyer are exposed to. For the seller, Shipping starts before the ARO delivery date. If the buyer fails to meet the payment requirements, the seller will incur losses such as shipping costs. The buyer starts payment immediately after signing a contract with the seller. If the goods are delivered to the wrong address, the buyer suffers additional expenses or may lose their cargo.
Depending on the nature of the goods, the relationship between the buyer and the seller, and payment options, the shipping process may start before payment is complete or after.
Advantages and Disadvantages of ARO
- It is easier to account for money received since the customers pay for the goods and services within an agreed period.
- The seller can receive all payments before the shipping process starts, especially if the lead time is short
- It fosters trust between the buyer and the seller, which may lead to a longtime business relationship.
- It saves time since the transaction process has to end within a specified period according to the agreement between the customer and the seller.
- It improves efficiency in manufacturing firms since goods ordered have to be delivered within a set lead time.
- The shipping process can start before payment is complete hence saving the customer time.
- It is not ideal for first-time purchases since it requires mutual trust between the buyer and the seller.
- Failure by one party to adhere to the agreement may lead to losses
- Not suitable for a one-time purchase such as gifts
- The buyer may wait long before receiving goods after completing payment.
- Monitoring cash flow is difficult in cases where the lead time is long
After receiving orders, payment methods and delivery of goods and services are suitable for established businesses. It simplifies the process of tracking cash flow within a company and improves efficiency and time management and is ideal for parties willing to build a long-term business relationship.