How the Freight Billing Process Works

Last Updated November 20, 2024

Freight billing is an overarching term that is used to describe the way money moves between shippers and carriers as part of the freight shipping process. It can be a complex and time-consuming process, and the logistics can be even more complicated when brokers are also involved in negotiating rates with carriers.

Understanding how the freight billing process works is essential for all parties involved to ensure that freight payments are handled properly.

The Importance of the Freight Billing Process

Freight billing is an essential part of the shipping process, as it lays out the specific details of a shipping agreement between a shipper, carrier, and broker (when applicable). The freight bill outlines the charges and contains all relevant information related to the shipment itself.

The in-depth nature of freight billing allows it to be used for recordkeeping and documentation (essential for freight invoice audits), verifying shipment details, determining accurate charges for a shipment, tracking and monitoring shipments, and ensuring transparent communication between parties. Shippers may even use freight billing documentation to compare carrier performance, such as by tracking key metrics like schedule adherence or delivery timelines.

A well-managed freight billing process streamlines freight audit and payment practices for all parties, helping to improve carrier/shipper relationships.

What Information Should Be Included on a Freight Bill?

A freight bill is much more in-depth than a typical invoice, acting as a dossier for each shipment. Similar to an invoice, a freight bill lists the shipper and consignee information, the carrier’s information, an invoice number, a description of shipment costs and accessorial charges, payment terms, and a due date.

However, a freight bill will also include a PRO number for shipment tracking, as well as a bill of lading (BOL) number, identification of the mode of transportation, a due date for when the shipment should be received, and even route details. This additional documentation helps all parties understand and plan for the logistics of the shipment.

How the Freight Billing Process Works

Here’s a step-by-step look at how the freight billing process works.

1. Shipper and Carrier Agree on Shipment Rate

The freight billing process begins as the shipper and carrier negotiate the rates for a shipment. In some cases, a broker may be hired by the shipper to negotiate rates with multiple carriers in an effort to find the best rate.

2. Payment Terms Arranged

After a shipment rate has been agreed upon, the shipper and carrier must then arrange payment terms. Standard freight payment terms may include net 30, net 45, or net 60. Some carriers will be flexible and offer multiple payment terms, while others set a single payment term for all clients. Acceptable payment methods will also be communicated during this stage.

3. Form of Transit Arranged

With rates and payment terms agreed upon, the carrier will then arrange the form of transit that will be used for the shipment. Whether to use truck, train, air, or even sea transport will usually be discussed during rate negotiations. At this point, however, it’s the carrier’s responsibility to get the necessary logistics in place so the shipment can be delivered on time.

4. All Details Included on Freight Bill

With these details squared away, the carrier will then issue a freight bill, which serves as documentation for the agreed-upon freight service. This bill includes:

• Shipper and consignee information
• Carrier information
• Invoice number
• PRO number
• Bill of lading number
• Shipment cost and description
• Accessorial/additional charges
• Payment terms and payment methods
• Freight mode and route details
• Shipment due date

5. Shipment Delivered

After the freight bill has been issued, it becomes the responsibility of the carrier to deliver the shipment to the consignee. The carrier should follow the route details included in the freight bill to ensure that delivery is completed on time.

6. Invoice Issued to the Shipper

After the delivery has been completed, the carrier will issue a finalized invoice to the shipper. The invoice typically includes:

• Shipper and consignee information
• Date of the shipment
• Pickup and drop-off locations
• Description of the shipment
• Summary of shipment charges, including any changes from the initial freight bill
• Payment due date based on payment terms

7. Invoice Verified by the Shipper, Beginning the Freight Billing Audit Process

After the shipper or broker receives the invoice, the freight bill audit begins. The shipper compares the details of the invoice with the original rate provided in the freight bill. Information is also compared to the bill of lading. This verification process ensures accurate recordkeeping and proper payment.

The freight audit looks for possible discrepancies that could result from common issues such as clerical errors, freight rate fluctuations, damaged shipments, duplicate payments, and so on. Changes to the shipment from the original details of the freight bill may also result in invoice differences. The auditing team must reconcile any issues before issuing payment.

8. Invoice Paid and Processed Upon Completion of Audit

After the shipper or broker completes their audit, they submit freight payment to the carrier using the agreed-upon payment method.

Freight Payment and Billing Best Practices

The freight payment process can be complex and time-consuming, but following some key freight audit and payment best practices will help things go smoothly for you and your clients.

Keep All Documentation Organized and Accessible

There is a lot of documentation involved in each shipment, including the freight bill, the bill of lading, and the final invoice. Documentation related to each shipping agreement should be stored together in an organized and easily accessible manner. Using freight payment software to create digital copies can help keep things organized so that you can quickly look up necessary documentation whenever there is a concern or dispute.

Have a Simple Invoice Template

A simple B2B invoice template can do wonders in ensuring that you get paid in a timely manner. A template that includes space for all necessary details for each shipment will help you quickly fill out the details for each invoice without forgetting to include any important information. A well-crafted template can continue to be used for each invoice you create.

Don’t Underestimate the Importance of a Freight Audit

Carriers should conduct their own freight audits as part of their accounts receivable process to confirm that the details in the invoices they send match the freight bill. Internal freight audits can catch issues such as duplicate invoices or clerical errors before an invoice is sent to the customer, helping to avoid payment disputes and other issues that could cause delays.

Consider Freight Factoring

Trying to collect unpaid invoices can become a major stressor for your accounting department. Even with clients who do pay on time, lengthy payment terms can put a serious strain on your cash flow. Freight factoring can serve as a valuable solution to these common payment issues, relieving the burden on your back-office team and enabling you to focus on providing quality work rather than chasing down payments.

With freight factoring, you sell unpaid invoices to a factoring company in exchange for a cash advance, typically worth 80-90% of the value of the invoice. After the client submits payment for their invoice to the factoring company, you’ll receive the rest of the invoice funds minus a small factoring fee. This ensures trucking businesses get timely payment to continue funding their operations without taking out a loan.

In-Summary: The Freight Billing Process

The freight billing process can be complex and intimidating, but it doesn’t have to become overwhelming. By understanding the steps that go into freight billing and creating quality templates for freight bills and invoices, carriers can streamline this process and enjoy a stronger working relationship with their clients. Organized documentation and reliable auditing processes will keep back office operations working smoothly so you can get timely payments from your clients and more effectively run your business.

Freight Billing FAQs

What is the difference between a freight bill and a bill of lading (BOL)?

A freight bill is a document that covers the financial details of a proposed shipping agreement between a shipper and carrier. This document will also cover planned details for the shipment, such as the type and quantity of materials to be transported, the transportation method, and the shipping route. The bill of lading is an official document that precisely lists and quantifies items that are sent in a shipment. This includes detailed descriptions such as the weight and value of each item. It is verified when the carrier picks up the shipment to ensure total accuracy.

When do you sign a freight bill?

A freight bill is signed when the parties involved agree to the terms and arrangements stipulated in the bill—after all negotiations have been completed.

What is freight bill factoring?

Freight factoring is a form of invoice factoring that allows trucking companies to sell outstanding accounts receivable to a factoring company for cash. The factoring company pays the majority of the invoice value upfront and provides the rest of the payment after the broker or shipper submits payment to them. The factoring company takes a small fee for this service.