The Law Office of Seaton & Husk, LP

Extending Credit for Freight Charges

Regulations for extending credit to shippers are set forth at 49 C.F.R. §377. Unless a carrier specifies a different credit period, by rule or by contract, freight charges are supposed to be paid with 15 days, inclusive of holidays and weekends, but seldom are. See §377.203(c). Carriers should include credit and collection provisions in their contract in order to recoup interest and attorneys fees incurred when debtors fail to pay timely. Great care must be taken to comply with the notification procedures in the rules to ensure that such charges are collectible.

Proper credit verification and monitoring is important to avoid bad debts. CompuNet Credit Services maintains an online database and fax service which allows carriers to determine not only the financial status of the shippers and brokers, but how these debtors pay their freight charges. CompuNet can help you establish credit limits and verification procedures to avoid credit risk particularly when dealing with spot market accounts, load matching services, etc.

Close monitoring of your AR run is advised to ensure that accounts do not exceed payment terms and that quick remedial action is taken to bring all accounts current. Ironically, even if a debtor pays you but pays you late, and then goes bankrupt, you can be sued to give back the payments you received by the debtor's estate. These so-called preference claims are often winnable but avoid the hassle by ensuring that the debtor stays current.

When dealing with intermediaries, remember that the majority of payment problems result when the intermediary does not transmit the money it received from the shipper to the carrier. Where at all possible, retain recourse to the consignor named on the bill of lading, and do not surrender your bill of lading collection rights by failing to pay attention to the contract or bill of lading. (If the shipper hired the intermediary, the intermediary should be the shipper's agent, not the agent of the carrier.)

There is developing case law to suggest that carriers, brokers and freight forwarders have a duty to receive freight charges in trust to the extent those charges are owed to another carrier. See Parker Motor Freight, Inc v. Fifth Third Bank, 116 F.3d 1137 (6th Cir. 1997) yet it is always best to preserve recourse to the actual shipper and beneficial owner of the shipment and to specify that the intermediary acts on behalf of the shipper which is its principal.

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