Understanding freight payments: A comprehensive guide

If you’re buying and selling physical goods, freight payments will be an integral part of your procurement or sales process.

In this guide, we’ll explain what freight payments are, how they work, the types of freight payments that exist, and the benefits of streamlining them.

What are freight payments? 

Freight payments are the charges paid to move goods from a seller to a buyer through a carrier.

These payments cover the cost of transportation (as well as related services), and are typically settled between:

• Shippers
• Freight forwarders
• Carriers
• Third-party logistics providers 

In commercial terms, freight payment responsibility is defined by the shipping agreement.

For instance, a “freight prepaid” term means the seller covers all transportation costs and pays the carrier directly. The buyer would, in this case, receive the goods without paying shipping charges upfront.

By contrast, “freight collect” means the buyer is responsible for paying the carrier upon delivery or according to agreed payment terms.

Clear freight payment terms are essential because they determine who pays, when payment is due, and how transportation costs are recorded in financial systems. 

Freight payments are not a single charge. In fact, they’re typically made up of several cost and process elements, including:

• Transportation charges
• Accessorial fees
• Carrier invoices 

Supporting documentation is also required. Bills of lading, proof of delivery, rate confirmations, and contracts are used to verify charges before payment.

How do freight payments work? 

Freight payments follow a structured process that connects logistics execution with financial control.

Once the goods are shipped, the carrier bills for transportation services, and those charges are validated against agreed-upon rates and shipment details. Approved invoices are then paid according to contractual terms.

The goal is to ensure carriers are paid accurately and on time while freight costs are properly recorded and controlled.

Roles of various stakeholders

In practice, the freight payment process sits at the intersection of operations and finance:

• Shipper: The business shipping the goods selects carriers, negotiates rates, defines payment terms, and is often responsible for approving and paying freight invoices.
• Carrier: The transportation provider that moves the goods issues freight invoices based on contracted rates, accessorial charges, and shipment details.
• Freight forwarder or third-party logistics provider: This intermediary may manage carrier relationships, consolidate shipments, or handle billing on behalf of the shipper.
• Consignee: The party receiving the goods. Depending on the freight terms, the consignee may be responsible for paying freight charges or confirming delivery details.
• Finance and accounts payable teams: Internal teams on both ends are responsible for validating invoices, resolving discrepancies, approving payments, and recording freight expenses in accounting systems.

Typical workflow of a freight payment transaction

While specifics vary by company and shipment type, most freight payment workflows follow a similar sequence.

Shipment execution

First, goods are shipped according to the agreed-upon terms. Shipment data, such as origin, destination, weight, and service level, is recorded.

Invoice generation

The carrier or logistics provider issues an invoice detailing transportation charges and any accessorial fees.

Invoice receipt and matching

Next, the invoice is received by the shipper. It is then matched against:

• Shipment records
• Contracts
• Rate agreements 

Discrepancy resolution

If charges do not align with expectations, the invoice is queried, corrected, or reissued before approval.

Approval and payment

Once the invoice is validated, it is approved and then paid according to the outlined payment terms.

Accounting and reconciliation

Freight costs are coded to the appropriate accounts, linked to shipments or orders, and reconciled for reporting and analysis.

Example of freight payments 

To understand how freight payments work in practice, let's explore an example.

Take a US-based wholesaler that imports consumer electronics from a supplier in South Korea and sells them to retail partners across the country.

Here’s what that process would look like:

1. Inbound shipment from supplier: The purchase agreement specifies freight prepaid terms. Accordingly, the supplier arranges ocean freight, pays the carrier, and includes the shipping cost in the product price. The wholesaler receives the goods without spying on the carrier directly.
2. Domestic distribution to retailers: When shipping orders to retailers, the wholesaler uses freight collect terms. The wholesaler arranges the carrier, but the retailer is responsible for paying the freight charges upon delivery or under agreed billing terms.
3. Freight invoice and payment process: For the shipment where the retailer is responsible for payment, the carrier sends an invoice showing line haul charges, fuel surcharges, and accessorial fees. The wholesaler’s accounts payable team then matches the invoices to shipping records, approves it, and makes payment within the stipulated net-30 terms.
4. Accounting treatment: Paid freight charges are recorded as freight expense or cost of goods sold, depending on company policy. Any discrepancies, such as unexpected accessorial fees, are reviewed and resolved before payment. 

Common challenges in freight payments 

Managing freight payments can be complex. Here are the most common challenges faced, so you can avoid them in practice.

Invoicing discrepancies and errors

Freight invoices regularly contain inaccuracies such as:

• Incorrect rates
• Duplicate charges
• Billing for unapproved accessorial fees
• Mismatches between shipment details and contract terms 

Without reliable validation processes, these errors can result in overpayment, prolonged disputes, and increased administrative effort.

Delayed payments and their impact

Discrepancies, manual approval workflows, and fragmented data often delay freight payments. 

Late payments can damage carrier relationships, reduce negotiating leverage, and, in some cases, lead to service delays or stricter payment terms. Internally, slow freight payments also create downstream issues for cash flow planning and period-end close.

Regulatory compliance issues

Depending on factors like shipment type and geography, freight payments can be subject to various regulatory and documentation requirements.

Incomplete or incorrect records, like missing bills of lading, can expose businesses to:

• Compliance risks
• Audits 
• Financial penalties 

Managing these requirements alongside high invoice volumes increases complexity for finance teams.

Limited visibility into freight spend

Freight costs are often distributed across multiple carriers, regions, and systems. This lack of centralized visibility makes it difficult to track total spend, identify cost drivers, or assess the financial impact of logistics decisions.

Manual and time-consuming processes

Heavy reliance on manual invoice review, email-based approval workflows, and spreadsheets slows processing and increases human error.

As shipment volumes grow, errors do too, meaning these processes become difficult to scale without additional headcount.

Poor alignment between operations and finance

When shipment execution data lives in logistics systems that finance teams cannot easily access, invoice validation becomes slower and less accurate. Misalignment between teams increases rework and delays approvals.

Types of freight payment solutions 

Freight payments can be so complex that they require a dedicated software solution or system to manage them.

In practice, there are three main options that shippers and sellers use to manage freight payments:

1. Traditional methods: These include email, spreadsheets, and basic accounting systems. Traditional tools like these are labor-intensive, error-prone, and tough to scale.
2. Modern solutions: Freight payment-specific software uses automation and system integration to reduce manual effort and improve accuracy. These include transportation management systems with integrated payment modules and accounts payable automation platforms that handle invoice capture, validation, approvals, and payments.
3. Outsourcing options: Many companies prefer to outsource freight payment management to a third-party provider, which manages invoice auditing, discrepancy resolution, carrier payments, and reporting. This can reduce internal workload and improve audit accuracy, but often introduces additional service fees and may limit direct visibility or integration with core finance systems.

Best practices for managing freight payments 

Whether you’re planning on outsourcing freight payments or handling it yourself, here are some important best practices you’ll want to implement:

Standardize freight terms and contracts

Define clear freight terms such as prepaid, collect, or third-party billing in all supplier and carrier agreements.

Validate invoices against shipment data

Always match freight invoices to shipment records, rate agreements, and contracts before approval to catch discrepancies.

Centralize freight payment workflows

Route all freight invoices through a single system or process rather than managing them across email, spreadsheets, and multiple inboxes.

Automate invoice capture and approvals

Use automation tools to extract invoice data, flag discrepancies, and apply approval rules, allowing your finance team to focus on exceptions rather than routine invoice processing.

Maintain strong documentation and audit trails

Store bills of lading, proof of delivery, contracts, and invoices together. Complete records support compliance, simplify audits, and make dispute resolution faster and more defensible. 

Align logistics and finance teams

Define ownership and communication expectations to ensure logistics teams share accurate, timely shipment data with finance.

Monitor freight spend and performance

Regularly review freight costs by carrier, lane, and service level. Ongoing analysis helps identify cost drivers, renegotiate rates, and improve budgeting and forecasting.

Pay carriers on time

Timely payments are important for strong carrier relationships, preserving negotiating leverage, and reducing service disruptions and penalty fees.

Benefits of streamlining freight payments 

Here’s why many businesses invest in software or services to streamline the management of freight payments:

• Improved cost control
• Fewer overarches and duplicate payments
• Faster processing and reduce admin workload
• Shortened invoice cycle times
• Stronger cash flow management 
• Strong carrier relationships through reliable payment performance
• Greater visibility and reporting data
• Reduces compliance risk through consistent, accurate records

How to choose the right freight payment solution 

If you’re considering investing in software to manage freight payments, here are the steps you should take;

1. Map your current freight payment flow to identify failure points
2. Quantify your complexity to determine how justified automation or outsourcing is 
3. Pick your top priority, such as cost control, faster close, stronger auditability, better visibility, or reducing AP workload
4. Use your volume to determine your solution type. AP automation is fine for low volumes, but if you want freight-specific auditing, dispute handling, and carrier payment management, consider a freight audit and payment provider.
5. Confirm the solution can connect to your ERP and accounting system, your payment rails, and your logistics data source
6. Look for audit and compliance controls like invoice matching and exception handling 
7. Evaluate subscription or service fees against savings from reduced overpayments, fewer disputes, less manual work, and faster processing.
8. Test with a subset of carriers or lanes, measure invoice cycle time and dispute rate, then scale once results are consistent.

How BILL can simplify your freight payments 

BILL helps businesses manage freight payments with greater accuracy, visibility, and control. By centralizing invoice capture, approval workflows, and payments in one platform, teams can reduce manual effort and minimize errors.

With seamless integration into leading accounting systems, freight costs flow directly into existing financial workflows without creating new silos. 

Discover BILL today.