What you should know about third-party billing
By Ray Bohman -- Logistics Management, 4/1/2007
We’re all aware that shipments billed “prepaid” require the carrier to collect its freight charges from the consignor named on the bill of lading, while shipments billed “collect” are to be collected from the consignee.
Many shipments, however, are billed to a third party and just about every carrier has established their own rules for governing such shipments. While there are no standard rules published in the National Motor Freight Classification (NMFC), most carriers publish their rules in their own individual rules tariffs, or in regional rate bureau rules tariffs under Item 435 (are often titled Collection of Chargers, Third Party Billing).
When you get involved in third-party billing—which is perfectly legal by the way—you, the shipper, take on an added risk if the third party fails to pay the carrier. That is to say, the carrier can go back and collect the pre-paid freight charges from you since you are required to guarantee such shipments. And if you’ve already paid the third party, you could end up paying the freight charges twice—particularly if the third party skips town or goes belly up. Further, the unpaid carrier might attempt to collect its freight charges from your customer, creating some strain in its relationship with your company.
It’s best to get to know the requirements, generally set up in a carrier’s third-party billing rules, so that you don’t get snared in any sticky third-party billing problems. Here are some of the more general rules shippers should know:
The third party’s name and address must be shown on the bill of lading at the time of the original tender.
Such shipments will only be accepted when the consignor has established credit with the carrier and guarantees to pay all lawful charges should the third party fail to pay within a specified number of calendar days of the date of invoice (such as 15), or within a time period provided in a duly negotiated pricing agreement.
Most carriers require such shipments to be “prepaid.” But, we have seen at least one rule allowing such shipments to move “collect” if the third party shown on the bill of lading is the consignee’s invoice mailing address or the consignee’s pay/audit agent’s address.
If the consignor making a third party billing shipment executes Section 7 of the bill of lading (the non-recourse stipulation), such shipments will not be accepted. If, however, such a shipment is inadvertently accepted with Section 7 signed, the signing of Section 7 will not be applicable and the carrier may exercise recourse for uncollected freight charges.
Lastly, the carrier retains the right to change “prepaid” bills to “collect” when it is unable to collect its freight charges from a third party; thereby making the consignee responsible for payment of all transportation charges. If the consignee is unable or unwilling to pay those charges, the carrier will place the shipment on-hand at the destination and notify the shipper. The shipper (or ultimate pay party) will be responsible for storage charges that are incurred while the shipment is being held at destination.
These rules make it imperative for shippers to meticulously check the financial stability of any payor when they engage in third-party billing. The consequences could cost you time and loads of money.
By Ray Bohman -- Logistics Management, 4/1/2007
We’re all aware that shipments billed “prepaid” require the carrier to collect its freight charges from the consignor named on the bill of lading, while shipments billed “collect” are to be collected from the consignee.
Many shipments, however, are billed to a third party and just about every carrier has established their own rules for governing such shipments. While there are no standard rules published in the National Motor Freight Classification (NMFC), most carriers publish their rules in their own individual rules tariffs, or in regional rate bureau rules tariffs under Item 435 (are often titled Collection of Chargers, Third Party Billing).
When you get involved in third-party billing—which is perfectly legal by the way—you, the shipper, take on an added risk if the third party fails to pay the carrier. That is to say, the carrier can go back and collect the pre-paid freight charges from you since you are required to guarantee such shipments. And if you’ve already paid the third party, you could end up paying the freight charges twice—particularly if the third party skips town or goes belly up. Further, the unpaid carrier might attempt to collect its freight charges from your customer, creating some strain in its relationship with your company.
It’s best to get to know the requirements, generally set up in a carrier’s third-party billing rules, so that you don’t get snared in any sticky third-party billing problems. Here are some of the more general rules shippers should know:
The third party’s name and address must be shown on the bill of lading at the time of the original tender.
Such shipments will only be accepted when the consignor has established credit with the carrier and guarantees to pay all lawful charges should the third party fail to pay within a specified number of calendar days of the date of invoice (such as 15), or within a time period provided in a duly negotiated pricing agreement.
Most carriers require such shipments to be “prepaid.” But, we have seen at least one rule allowing such shipments to move “collect” if the third party shown on the bill of lading is the consignee’s invoice mailing address or the consignee’s pay/audit agent’s address.
If the consignor making a third party billing shipment executes Section 7 of the bill of lading (the non-recourse stipulation), such shipments will not be accepted. If, however, such a shipment is inadvertently accepted with Section 7 signed, the signing of Section 7 will not be applicable and the carrier may exercise recourse for uncollected freight charges.
Lastly, the carrier retains the right to change “prepaid” bills to “collect” when it is unable to collect its freight charges from a third party; thereby making the consignee responsible for payment of all transportation charges. If the consignee is unable or unwilling to pay those charges, the carrier will place the shipment on-hand at the destination and notify the shipper. The shipper (or ultimate pay party) will be responsible for storage charges that are incurred while the shipment is being held at destination.
These rules make it imperative for shippers to meticulously check the financial stability of any payor when they engage in third-party billing. The consequences could cost you time and loads of money.