Freight Terms: What They Mean and Who Pays

In plain English

The phrase is used in two different worlds, and that is why searches for it are confusing. On a domestic US bill of lading, freight terms are one of three payment choices: prepaid (the shipper pays the carrier), collect (the receiver pays) or third party (a different company pays). In international trade, freight terms usually means the delivery rules called Incoterms, such as FOB, DAP and DDP.

Both answer the same two questions: who pays, and who is responsible if something goes wrong on the road. They just answer them at different levels of detail.

Why it matters when you ship

Freight terms decide who gets the invoice and who has to file a damage claim. If the terms are vague, the carrier will bill whoever is easiest to reach, which is usually the shipper, and the shipper then has to chase the buyer for the money.

Write the terms into the purchase order and the bill of lading before the freight moves. Changing them after pickup is slow and sometimes impossible.

Example

A parts supplier sells to a repair shop and ships on the shop’s account. The bill of lading is marked freight collect, so the carrier bills the shop for the delivery. If the shop refuses the freight, the carrier can come back to the supplier for payment, which is why many shippers prefer prepaid or third-party billing.

Related terms

• Freight prepaid
• Freight collect
• Third-party billing
• Incoterms
• FOB (Free on Board)
• Bill of lading (BOL)

Learn more

Freight terms: common questions