Freight payment terms: structures, risk and factoring

For a carrier, when you get paid matters as much as the freight amount. Fuel, tolls, wages and loan instalments do not wait, but an invoice sometimes does, for weeks. This article covers payment term structures, how terms relate to price, and what you can do about late payment.

Typical term structures

There is no single standard in freight; terms are negotiated. Common setups are:

• Cash or payment on delivery: Paid when or just after the job is done. Easiest for the carrier, least flexible for the shipper.
• Term from invoice date: The clock starts on the invoice date. When the invoice will be issued should also be clear.
• Term from receipt of documents: The clock starts when the signed CMR and other documents reach the shipper. If documents arrive late, the term slips too, so sending them quickly is in the carrier's interest.
• End of month terms: Payment tied to the end of a given month.

Whichever you choose, write down what event starts the clock in the order. We do not quote an average term here, because it varies by sector, country and customer.

How terms affect price

A long term is a financing cost for the carrier: you either cover the gap from your own cash or borrow. So term and freight price are linked. A carrier who accepts a long term should reflect it in the price, and a shipper who asks for a short term may sometimes get a better rate. When comparing offers, look at the term as well as the freight.

Factoring

Factoring means assigning your invoice to a finance company and receiving payment before the due date. It eases cash flow; in return it has a cost, and who carries the risk if the payer does not pay depends on the contract. Read the factoring terms carefully before signing.

The risk of late payment

Late payment is the quietest loss a carrier can suffer. To protect yourself:

1. Get the term in writing; a spoken term does not help in a dispute.
2. Send documents (signed CMR, proof of delivery) right after delivery.
3. With a new customer, prefer a short term or a small first load.
4. Follow up overdue invoices and send reminders without delay.
5. Watch for fraud signs; see our article on avoiding freight fraud.

The EU Late Payment Directive

In the EU, Directive 2011/7/EU regulates late payment in commercial transactions. According to the European Commission's summary, businesses must generally pay invoices within 60 days; a longer term is valid only if expressly agreed and not grossly unfair to the creditor. Late payment triggers statutory interest and a minimum fixed compensation of EUR 40 for the creditor. The directive has been transposed into national law, though, and some countries have stricter rules. Which law applies to a given deal depends on the contract and the structure of the transaction, so check the current rule from an official source and your own contract, and ask a legal adviser if needed.

On Order And Load

In an order, freight, payment term and documents sit together. On the accounting side, term tracking, reminders and Excel export are part of the PRO plan. For terms, see the Glossary.