Shipping goods across borders or even within a country involves more than just moving items from one place to another. One important decision is who pays for the shipping charges—the sender or the receiver. This is where the terms “Freight Collect” and “Freight Prepaid” come into play. Knowing the difference between these two payment methods helps businesses avoid confusion, manage costs, and build smoother trading relationships.
Freight Collect means the person or company receiving the goods (the consignee) is responsible for paying all the shipping charges when the goods arrive. The carrier or shipping agent collects the freight charges directly from the receiver before handing over the goods.
This method is often used in situations where the buyer wants to control shipping costs or prefers to pay only after the goods have been delivered. Freight Collect is commonly linked with Incoterms like EXW (Ex Works) and FOB (Free On Board), where the buyer takes on more responsibility for the goods during transit.
Choosing Freight Collect can be helpful for buyers who want to manage their expenses and select their preferred carriers. However, it also means the receiver must be prepared to pay the charges upon delivery, and delays can occur if payment is not made promptly.
Freight Prepaid is the opposite arrangement. Here, the sender (the shipper) pays all the shipping charges upfront before the goods are shipped. The cost of shipping is often included in the total price of the goods or added to the buyer’s invoice. This method is common with Incoterms such as CIF (Cost, Insurance, and Freight), CFR (Cost and Freight), and DDU (Delivered Duty Unpaid).
With Freight Prepaid, the shipper takes responsibility for the shipment until it reaches the destination. This can help build trust with buyers, as they do not need to worry about arranging payment on arrival. However, the shipper must cover all costs in advance and handle any extra charges that might come up during transportation.
The main difference is who pays for the shipping and when the payment is made. In Freight Collect, the receiver pays upon delivery, while in Freight Prepaid, the sender pays before shipping. This affects cash flow, control over the shipping process, and the handling of shipping documents.
| Feature | Freight Collect | Freight Prepaid |
| Who Pays | Receiver (Consignee) | Sender (Shipper) |
| When Paid | Upon Delivery | Before Shipping |
| Common Incoterms | EXW, FOB | CIF, CFR, DDU |
| Control Over Carrier | Usually Shipper | Shipper |
| Cash Flow Impact | Buyer pays later | Seller pays upfront |
Understanding these differences helps businesses choose the best option for their needs and ensures the shipping process goes smoothly.
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When deciding between Freight Collect and Freight Prepaid, consider factors such as cash flow, shipment size, business relationship, and destination regulations. For example, if the buyer prefers to manage expenses after receiving goods, Freight Collect may be better. If the shipper wants to ensure smooth delivery and maintain control, Freight Prepaid could be the right choice.
Think about the size and value of the shipment, the reliability of your trading partner, and any special requirements for customs or documentation. In some cases, the choice may also depend on the standard practices in your industry or region.
One common misconception is that the party listed as responsible for freight payment on the Bill of Lading always pays all related charges. In reality, extra fees like terminal handling or local delivery charges may not be included unless specifically stated in the agreement. Another myth is that the payment term cannot be negotiated—businesses can often agree on terms that work best for both parties.
It’s also important to understand that Freight Prepaid does not always mean all charges are covered. Some costs, especially at the destination, may still fall to the receiver if not included in the contract.
Yes, shippers and receivers can usually negotiate who pays for shipping and under what terms, as long as both agree and it’s clearly stated in the contract.
If the receiver does not pay, the carrier may hold the goods until payment is made or return them to the sender, often at extra cost.
The party responsible for payment often handles customs clearance. With Freight Prepaid, the shipper may arrange clearance; with Freight Collect, the receiver usually manages it.
CIF (Cost, Insurance, and Freight) is a prepaid shipping term. This means the seller pays for the freight charges and insurance to bring the goods to the destination port, so the buyer does not pay shipping costs on arrival.
FOB is not exactly the same as freight collect, but they are often used together. FOB describes when the responsibility for the goods passes from seller to buyer, while freight collect means the buyer pays the shipping charges at the destination.
Understanding the difference between Freight Collect and Freight Prepaid helps businesses make smarter decisions about shipping. The key is knowing who pays, when the payment is due, and what each party is responsible for. By choosing the right payment method and clearly stating terms in shipping documents, businesses can avoid confusion, manage costs, and keep their supply chains running smoothly.
Looking for a reliable partner to handle all your logistics and warehousing needs in New Jersey? Contact LOKI 3PL today for full logistics management, including storage, shipping, inventory control, and order fulfillment. Our team is ready to help your business run smoothly, save time, and keep your customers happy. Reach out now and let LOKI 3PL take care of your logistics.
LOKI 3PL is your trusted third-party logistics (3PL) partner, handling warehousing, fulfillment, and transportation so you can focus on growing your business. We streamline supply chain operations, ensuring fast, reliable, and cost-effective logistics solutions.
