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Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?

Freight bill processing can feel like a high-stakes money game between shippers, payors, and transportation providers. For the most part, shippers dread the daunting and time-consuming task of auditing freight bills to process payments to carriers. Meanwhile, carriers – particularly parcel and Less-Than-Truckload (LTL) carriers – face their own set of challenges when issuing invoices and resolving disputes with payors. So, what is the root cause of this painful money game? The cause – COMPLEX FREIGHT PAYMENT TERMS IN TRANSPORTATION CONTRACTS!

Yes, if you have a complicated carrier contract, this leads the pack in the many pitfalls of freight bill processing. But why does it have to be this difficult? Could there be a simpler solution? In this article, I’ll dive into the top 10 pitfalls in the treacherous world of freight bill payments. Also, I will explore 8 possible technologies and methodologies that could ease the entire process.

The Basics Of Freight Payment Terms And Why You Need Them.

The Freight Bill Processing Money Game - Freight Payment Terms
The Freight Bill Processing Money Game

First, let’s review the basics of freight payment terms. To explain, freight payment terms are part of a transportation contract between a carrier and shipper. Now obviously, the reason to have these contract terms is to govern how the carrier charges the payor for its transportation services. Additionally, it details how the payor pays for these transportation. Further, there are U.S. government regulations from the Electronic Code Of Federal Regulation (eCFR), part 378, that outlines procedures for freight bill processing and payment. 

Now for ground transportation in the U.S. an invoice is commonly referred to as a freight bill. So based on an agreed upon contract, a payor will use a freight bill audit & payment process to pay the transportation carrier. Surprisingly, the contract’s freight payment terms can be quite lengthy including such things as timeliness of payments, discounts for early payments, late payment fees, and other administrative requirements. 

Further, these freight bill payment terms are very burdensome for both the carrier and the shipper. Indeed, there are many reasons why both parties will agree to extensive and complicated contract terms. First, the payor will take on these additional burdens such as 7-day net pay to receive discounts on their freight charges. Second, the carrier will take on additional burdens such as waiving late fees to secure new business with the shipper. Lastly, another key aspect of freight payment terms is who pays the freight bills. It is not always the shipper. So payment terms can be very complicated, but basically there are three types of payors for domestic shipping.

Types Of Freight Payors
  • Prepaid Freight.  The shipper is responsible for all shipping charges. Especially if you are a large volume shipper, this is the best option for shippers. This is because normally a large shipper is able to negotiate a great discount rate with the carrier.
  • Collect Freight. In this case, the consignee, the receiver of the shipment, is responsible for paying the shipping charges. For International shipments, this includes taxes and duties.
  • Third-Party Freight. With third party payors,neither the shipper or the consignee pays for the shipment. For example, a freight broker or third party logistics (3PL) is paying for the shipment.

Now there are other terms of sales, especially for International shipping. These terms of sales are called incoterms which are a set of internationally recognized rules which define the responsibilities of the sellers and buyers. Specifically, for a given shipment these Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities. For more information on incoterms, see International Trade Commission’s Know Your Incoterms.

For more information on the basics of freight bill terms, see RiteRouting’s Three Main Types Of LTL Freight Charges. Also, for a detail review of the steps to process freight bills, see my article, The 7 Steps To Process, Audit, And Pay A Carrier’s Invoice.

The Pitfalls Of The Freight Bill Payment Money Game.

As discussed, the freight bill and payment process can often be a complex and time-consuming endeavor, leading to various pitfalls for both shippers and carriers. One common challenge is invoice discrepancies. Specifically, this is where there are errors or discrepancies in billing information. As a result, this can likely lead to delays in payment or even disputes. Another pitfall is the manual nature of the process, which increases the likelihood of human error and inefficiencies. To detail, below is a list of the ten most common pitfalls with freight bill processing & payment.

10 Pitfalls With Freight Bill Audit & Pay

  • 1. Surprise Freight Bill Fees and Surcharges.
  • 2. Shipper Inaccurate With Their Shipment’s Freight Classification Or Dimensions.
  • 3. An Over Complicated Freight Bill and Audit Process.
  • 4. Unnecessarily Tying Up Cash Flow and Working Capital In Freight Bill Processing.
  • 5. Having Poor Visibility into Transportation Spend.
  • 6. High Labor Costs Handling Freight Bill Errors And Overcharges.
  • 7. Incurring Late Freight Bill Payments and Penalties.
  • 8. Regularly Having To Dispute Freight Bill Charges And Lengthy Resolution Processes.
  • 9. Losing Trust In Carrier Due To Their Lack of Transparency in Their Billing Practices.
  • 10. Over Complicating Freight Bill invoicing With Different Discounts Depending Who Is Paying The Freight Bill.

For a detailed discussion on these pitfalls, see my article, Spotlight On Freight Bill Payment: 10 Pitfalls To Best Overcome.

Spotlight On Freight Bill Payment: 10 Pitfalls To Best Overcome.

Navigating through the freight bill and payment process can be quite a maze, causing headaches for shippers and carriers alike. One common challenge is invoice discrepancies, where even the smallest error in billing info can result in payment delays and disputes. Moreover, the manual aspect of handling these tasks invites human errors and sluggishness.

So, let’s dive into the top ten pitfalls to avoid when processing and paying freight bills. But don’t think this is all bad news. I also have some possible solutions to get us out of this mess! Click here to explore some solutions and tips to help make freight bill audit and payment easier.

Exploring New Technology And Methods As Alternatives To Traditional Freight Invoicing And Payment.

In recent years, advancements in technology have paved the way for alternative methods to audit carrier invoices against freight payment terms. Further, there are new ways to process freight payments. Indeed, many of these advancements do help to streamline freight bill audit & payment. However, beware and do your due diligence to pick the best solution for your company. Indeed, a quick fix or buying in to a hype-filled sales pitch may lead to worse problems. Below is a list of the major ways that you can streamline your payment process to pay carriers for their transportation services.

Alternative Tech Solutions And Methods To Process Freight Bills
  1. Simplify Your Freight Payment Terms.
  2. Leverage A 3rd Party Audit & Pay Provider.
  3. Implement An Automated Freight Invoice Payment Systems EDI / APIs.
  4. Leverage Artificial Intelligence (AI) Automation For Freight Invoice Processing Analytics.
  5. Use Blockchain And Smart Contracts.
  6. Start Using Instant Freight Invoice Payment.
  7. Use Cryptocurrency As An Alternative Payment Option.
  8. Implement A No Freight Invoice Option: Pay Based On Electronic Shipment Manifest And IoT Data Capture.

To explore these freight bill audit and payment solutions further, see my article, Freight Invoice Audit & Payment: New Tech And Methods That Will Make It Better.

Freight Invoice Audit & Payment: New Tech And Methods That Will Make It Better.

The tech revolution has paved the way for more efficient methods of managing freight billing audits and payments. Nowadays, shippers seeking to pay their freight invoices in compliance with their contracts face a multitude of barriers. These range from complex, outdated paper-based systems to difficulties in accessing and interpreting freight invoice data. Click here to explore eight innovative strategies designed to streamline and improve the freight audit and payment processes.

For more from SC Tech Insights, see the latest articles on shipping and finance.

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