When freight is shipped by truck, it is accompanied by a Bill of Lading. On the bill of lading, you’ll almost always find a section titled “Freight Terms”, which will either be populated with Freight Prepaid, Or Freight Collect. But what exactly do these terms mean, and what’s the difference? We’ll go over that in this article.
Definition of Freight Prepaid
There is a common misconception that a prepaid shipment means that it was paid for before being picked up, but this isn’t necessarily the case. It simply means that the shipper (sometimes referred to as the consignor) is responsible for paying the freight charges, and any accessorials.
By listing the payment terms on a bill of lading, the freight carrier will know exactly who to bill for their services. If a carrier is factoring their freight bills, it lets the factor know where to seek payment. In addition, it let’s the carrier know who they should contact if any accessorials are to be incurred while enroute, such as an overlooked or unexpected lift gate delivery or residential access charge.
Definition of Freight Collect
Freight Collect is the opposite of prepaid, and again, there is a common misconception that collect shipment terms require the carrier to collect payment upon delivery, like a COD (Cash on delivery). This isn’t the case, rather, freight terms collect instruct the carrier to bill the consignee for all freight charges and accessorials.
There may still be a COD request on a bill of lading, and it isn’t related to the freight payment terms in any way. Though rare, COD can be requested whether the terms are prepaid or collect.
Why are Freight Terms Listed on a Bill of Lading?
Because there isn’t a standardized process as to who pays a carrier for their services (shipper or consignee), the freight terms on a bill of lading let the carrier know where to send a bill and who is responsible for paying it.
Whether the terms are prepaid or collect, there is no difference in the way a shipment is billed by the carrier, or paid by the customer.
What if No Payment Terms are Listed?
Because there is no standardized bill of lading, each one is formatted differently, and has information listed in different spots. Information can be conveyed in different ways depending on the actual bill of lading. For example, check boxes can be used to notate the payment terms, rather than simply printing “Prepaid” or “Collect”. This can make it difficult to find the information you are looking for.
In some cases, you may not find any shipment terms listed at all. This can be a problem, because you need to know where to send an invoice to in order to get paid.
A way to determine the freight terms may be to look for a “Bill To” address listed on the Bill of Lading. There may be a designated spot for a “Bill To” address, or it may be hand written in the body of the bill.
If you find it, and the shipper is listed as the “Bill To” party, then you can determine that the terms are prepaid. Alternatively, if you see the consignee listed as a “Bill To”party, you can determine that the freight charges are to be billed collect.
Are There Any Other Terms?
There is another term that you may see on a bill of lading, and that is a “Third Party Bill To” party. If there is a third party listed, then neither the shipper now consignee is responsible for the freight charges. The third party may be a broker that arranged the transaction between both parties, or it may be a logistics provider such as a freight broker or 3PL.
A Final Note
Trying to figure out the difference between Freight Prepaid, and Freight Collect may seem confusing if you don’t know what they mean. It can be easy to overthink it. After reading this post you should have a better understanding of the different types of freight terms you’ll see on a bill of lading.