Freight billing: Understanding the freight payment, invoicing, and collections process

You’ve just delivered the load, and now it’s time to get paid. But what happens next? The freight billing process kicks off, and understanding each step is key to keeping your cash flow steady and your business thriving.

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For freight brokers, this process involves three main components:

1. Freight Invoicing – Carriers send invoices to brokers, who then create invoices for shippers.
2. Freight Payments – Brokers pay carriers either immediately through QuickPay or within agreed-upon payment terms.
3. Freight Collections – Brokers collect payments from shippers for the services provided, sometimes with the help of a factoring company.

In this article, we’ll walk you through the ins and outs of freight invoicing, payments, and collections, so you can streamline your operations and keep your business running smoothly.

What is the freight billing process? 

The freight billing process is how money flows between the three key players in freight logistics: shippers, brokers, and carriers. As a broker, you're the middleman, paying carriers for transporting goods and collecting payment from shippers.

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Here's a quick breakdown of it works: 

1. A shipper contracts a broker to arrange transportation for their goods.
2. The broker finds a suitable carrier and negotiates rates.
3. The carrier transports the freight and invoices the broker upon delivery.
4. The broker pays the carrier according to agreed-upon terms.
5. The broker invoices the shipper for the transportation services.
6. The shipper pays the broker according to their payment terms.

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Although the process is essential for keeping things moving, it is not always simple. The main challenge brokers face is cash flow. Carriers often expect QuickPay, sometimes within a few days or a week, while shippers can take 30 to 60 days to pay. This mismatch creates a gap that brokers must manage, and it can put pressure on their finances.

Another challenge is the paperwork. Brokers have to keep track of invoices, verify important documents like PODs and BOLs, and make sure everything matches up when reconciling payments. Without a streamlined back-office system, this can quickly become time-consuming and lead to delays. These inefficiencies can add stress and make cash flow harder to manage.

Understanding freight invoices

What is a freight invoice? Freight invoices are the bills issued by carriers to brokers, and by brokers to shippers. They include details of the shipment, additional charges or fees, and more. Freight invoices are the cornerstone of the freight billing process, and brokers will have to deal with them on both sides of the shipment: invoices from carriers and invoices to shippers.

1. Carrier invoices

Carrier invoices are the bills sent to brokers, sometimes referred to as a “freight bill” or “freight invoice”. Carrier invoices include all of the details of the shipment, rates, and fees to be paid for the delivery of goods.

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These invoices typically include:

• The contact information for the shipper, receiver, and carrier
• Dates of pick-up and delivery
• Rates for the transportation services, including any applicable surcharges
• The payment due date
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Carriers’ invoices also sometimes contain what’s known as accessorial charges – fees for additional services provided aside from transporting freight from Point A to Point B. Some of the most common accessorial charges brokers may encounter include:

• Detention charges: Detention charges happen when drivers wait extra time before getting loaded or unloaded at the loading dock.
• Reconsignment charges: Reconsignment charges occur when the freight destination changes after a carrier has already picked up the shipment.
• Stop-off charges: Stop-off charges are when additional stops get added to a route, leading to additional time spent by the carrier. 

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As a broker, it's important to be aware of these charges as they will need to be passed on to the shipper.

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2. What is a shipper invoice? 

Shipper invoices from freight brokers are the invoices sent to shippers after the load is delivered. A shipper invoice is the bill you, as a broker, send to your client (the shipper) for arranging transportation services. The shipper invoice sent by brokers contains many of the same details as carrier invoices, such as the services rendered, costs, payment due dates, and more.

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Shipper invoices typically include:

• Names and details of the shipper, carrier, and receiver
• Shipment details (origin, destination, date)
• Base freight charges
• Fuel surcharges
• Any accessorial charges passed on from the carrier
• Your brokerage fee or commission
• Total amount due
• Payment terms and due date

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The shipper invoice is how brokers get paid for arranging the transportation, and it reflects both the carrier’s costs and the broker’s fees.

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Best practices for managing freight invoices

When handling freight invoices, brokers should ensure transparency and clear communication at every step of the billing process. Here are some best practices:

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• Itemize accessorial charges: Any additional fees from the carrier, such as detention, reconsignment, or stop-off charges, should be clearly listed on the shipper invoice. This helps avoid confusion and ensures that shippers understand exactly what they are being billed for.
• Ensure accuracy: Accuracy is key when reconciling carrier invoices with shipper invoices. Make sure all details, including freight charges, surcharges, and payment terms, are correct before sending invoices to shippers.
• Be transparent about additional charges: Communicate any accessorial charges in advance to the shipper, so they are not caught off guard. This can help build trust and maintain positive working relationships.
• Streamline your back-office: With so many moving parts, it’s essential to have an organized and efficient back-office operation. A streamlined system helps avoid delays, errors, and unnecessary back-and-forth communication.
• Automate invoicing: Reduce errors and save time by automating invoicing. With a factoring company like Denim or a TMS integration, load data is automatically populated into invoices, streamlining the process and speeding up payment.

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By following these best practices, brokers can manage their freight invoices more effectively, improve cash flow, and ensure a smoother billing process for both carriers and shippers.

Understanding freight payments 

After the invoices have been created and sent, the next step in the freight billing process is freight payments. This includes payments from brokers to carriers, freight bill factoring, and finalizing shipment details with the carrier before sending off an invoice to the shipper.

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What are freight payments? 

Freight payments are the payments made from brokers to carriers for the services the carrier provides. These payments are essential to stay on top of as a broker, because they are the building blocks of a good reputation with carriers. Top carriers are picky about the brokers they work with, and establishing a reputation for consistently paying carriers on time and quickly is crucial for brokers who want to grow.

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The biggest way these payments impact your business is through your freight broker credit score. Brokers with good credit scores have an easier time getting financing, finding carriers who want to transport their loads, and getting the best rates from lenders - so it’s not something to ignore!

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Best payment practices for brokers:

Following these payment best practices will help keep your brokerage in good standing and help ensure carriers, shippers, and other third parties are happy and paid on time, all while cutting down on time spent by your back-office:

1. Implement a QuickPay program: Offer QuickPay payments to reliable carriers, but be cautious. It's best to use QuickPay for carriers you've established relationships with or those vetted through programs like MCP. Avoid using QuickPay for first-time invoices.
2. Maintain consistent payment schedules: Set up automated payment terms for each carrier. This consistency builds trust and contributes to a healthy broker credit score.
3. Don’t QuickPay carrier factoring companies: Consistently paying carrier factoring companies within 28-29 days helps improve your brokerage’s reputation and credit. One easy way to do this is to give carriers ‘set and forget’ settings for their payments, so payments are made on time every time. Establishing consistent settings for factored invoices also helps reduce calls from carrier factoring companies following up on payments.
4. Prioritize carrier payments: Always prioritize paying your carriers before paying yourself. This prevents debt spirals and ensures you're covering your obligations first.
5. Consider working with a factoring company: Factoring with a company like Denim can automate your payments, saving time and improving cash flow management.

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Common freight payment pitfalls

As you can tell, it’s easy for the freight billing process to get overwhelming fast. Freight payment terms, invoices, and contracts can change dramatically from day to day and route to route. With all of this complexity, mistakes are bound to happen - especially with error-prone manual data entry. Here’s some of the most common pitfalls brokers fall into with freight payments:

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Inaccurate documentation 

Be sure to double-check for duplicate payments or incorrectly calculated charges on carrier invoices.
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These errors are unfortunately all too common in brokerages, not because of any malice from carriers, but because manual calculations are frequently error-prone. As a broker, you want to ensure accuracy in the invoices you receive to prevent you and your shippers from overspending.

Misalignment with agreed payment terms 

Ensure you're sticking to the payment schedules you've established with carriers. The different payment terms between shippers and carriers can be a huge challenge for brokers, leading to some brokers delaying payments to carriers.

This is a huge mistake. No matter how long it takes shippers to pay, brokers need to stay liquid enough to pay carriers on time. Otherwise, carriers may stop working with you; or worse, they may file against your surety bond, which will cost you additional money and could hurt your credit and reputation in the long run. This is why we often recommend brokers work with a factoring company to maintain cash flow and liquidity, even if they choose not to factor every load.

Poor record-keeping and bookkeeping 

Maintain detailed records of all transactions to comply with regulations and provide transparency when needed.

Freight brokers also need to be sure they’re keeping good records of payments to carriers and payments from shippers. According to federal regulation — specifically, 49 Code of Federal Regulations part 371.3 — every party in a brokered transaction has a right to review records of those transactions. If carriers or shippers ask, a freight broker must be able to furnish information like the bill of lading, the details of all parties involved in the transaction, the amount of compensation received for brokerage services, and more.

Understanding freight collections

Freight collections are the last step in the freight billing process, where the broker collects payment from the shipper. This often is determined by the broker shipper contract, freight payment terms, and invoice terms from the broker.

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What are Freight Collections? 

Freight collections is the process of a broker receiving payment from shippers for the transportation services you've arranged. Effective collections are crucial for maintaining positive cash flow and the overall health of your brokerage.

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A collections process is critically important for brokering. This process ensure you have revenue when you need it, maintain positive relationships with shippers, and most importantly lets you meet your financial obligations to carriers. When handled professionally and clearly, a solid collections process provides a positive customer experience between your brokerage and shippers, leading to repeat business and a great reputation in the industry.

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Steps in the Collections Process

1. Invoice sent to shipper: Send accurate, detailed invoices to shippers promptly after loads are delivered.
2. Invoice tracking: Monitor the status of all outstanding invoices and track invoice aging.
3. Payment reminders: Send reminders as due dates approach.
4. Follow-up: Contact clients about upcoming payments consistently.
5. Escalation: If necessary, establish an escalation process to collect on overdue payments.

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Best Practices for Freight Collections:

1. Establish clear payment terms and policies upfront: Ensure your clients understand and agree to your payment terms before providing services.
2. Maintain accurate records: Keep detailed documentation of all transactions and communications for reference and compliance.
3. Implement automated reminders: Set up a system to automatically notify clients of approaching due dates and overdue invoices.
4. Foster good relationships with shippers: Build strong, professional relationships to encourage timely payments and open communication.
5. Offer multiple payment options: Make it easy for clients to pay by accepting various payment methods.
6. Consider early payment incentives: Offer small discounts for early or on-time payments to encourage prompt payments of invoices.

Freight Invoicing, Payments, and Collections Partners

Due to the complicated and often burdensome process involved in invoicing, payments, and collections, many brokers opt to use specialized partners to streamline their freight billing processes. 

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Working with a financial partner can streamline the process for brokers, shippers, and carriers while avoiding the common pitfalls outlined above. For example, a platform like Denim offers automated invoicing, which can help brokers avoid duplicate and inaccurate invoices. 

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These tools also provide services like factoring and managed collections. With managed collections, brokers can also spend less time chasing shippers for payment and more time on critical business functions. Factoring services also give brokers a flexible tool to maintain consistent cash flow. Factoring allows a broker to sell unpaid invoices to a financial partner for immediate cash.

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Many financial partners also offer carrier QuickPay options, which allow brokers to pay carriers faster. That efficiency, in turn, leads to better relationships with carriers. Reports show that as many as 60% of brokers don’t have easy, digital ways to pay carriers. Carriers prefer working with brokers that pay on time and reliably, leading to brokers with access to these tools getting their pick of the best carriers in the business.

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Finally, financial partners like Denim provide best-in-class analytics, reporting tools, and compliance support, giving brokers valuable insights into financial data at a glance while ensuring compliance with regulatory requirements.