Every bill of lading has a small box — sometimes a checkbox, sometimes a few characters of text — indicating whether the freight is prepaid, collect, or third party. Most people in the supply chain look at it for half a second and move on. When freight charges go unpaid, that box becomes one of the most-litigated marks on the document.

Here is what those terms actually mean, what they do not mean, and where carriers, shippers, and consignees most often get tripped up.

"Prepaid" does not mean "already paid"

This is the most common misunderstanding in the industry, and it costs carriers and consignees real money every year.

"Prepaid" is a billing instruction. It tells the carrier to invoice the shipper (the consignor) rather than the consignee. It does not mean the shipper has already cut a check, and it does not mean the freight charges have been satisfied. A load can move under a prepaid bill of lading, deliver clean, and still have a balance due thirty, sixty, or ninety days later.

The practical consequence: a consignee who sees "prepaid" on the BOL and assumes the freight has been paid for is making an assumption the document does not support. If the shipper never pays, the carrier still has a claim — and in the right circumstances, that claim can reach the consignee.

"Collect" puts the bill on the consignee

A collect designation directs the carrier to invoice the receiver. This is the common arrangement when the buyer has negotiated freight as part of the deal — FOB origin terms, for example, where title and freight responsibility pass at the shipper's dock.

The risk on a collect shipment is the mirror image of the prepaid risk. The shipper may assume that because the BOL says "collect," it has no further exposure. That assumption is also wrong. The shipper's status as the party that tendered the freight creates an independent basis for liability under the common law and under 49 U.S.C. § 13706, and a billing designation alone does not waive it. Shifting that liability requires the Section 7 non-recourse clause to be properly executed — not just a notation in the prepaid/collect box.

"Third Party" is the one that causes the most trouble

Third-party billing tells the carrier to invoice someone other than the shipper or the consignee — typically a broker or a freight payment company. On paper it is a clean arrangement. In practice, it is where most double-payment disputes start.

When the third-party biller fails — most often a broker that goes insolvent or simply stops paying — the carrier is left with charges owed and a billing party that cannot satisfy them. The carrier then looks upstream to the shipper, downstream to the consignee, or both. The third-party designation does not extinguish the underlying liability of the shipper or the consignee under federal law. It directs where the invoice goes, not who is ultimately responsible if the invoice is not paid.

Shippers and consignees frequently push back on this. The argument runs: "We told the carrier to bill the broker. The carrier did. The broker didn't pay. That's the carrier's problem." Courts have consistently rejected that argument. The party that tendered the freight, and the party that accepted it, remain on the hook absent the specific contractual mechanisms that shift liability.

The practical lesson

For carriers: the box on the BOL tells you who to invoice first. It does not tell you who is ultimately liable, and it does not foreclose pursuing the shipper or consignee when the bill-to party fails.

For shippers: a "collect" or "third party" notation is not a release. If you want to actually limit your exposure when a broker fails, execute the Section 7 non-recourse clause. Notations in a billing box will not do it.

For consignees: "prepaid" is not a guarantee. If the broker or shipper does not pay, the carrier may still come to you, and the BOL alone will not be your defense.

The freight industry runs on small marks on standardized documents. Knowing what they actually say — and what they do not say — is the difference between getting paid and writing the loss off.

Edgar Davison is the founding attorney of Davison Law Firm in Memphis, Tennessee, where his practice focuses on transportation law, freight charge recovery, and commercial litigation for motor carriers and freight brokers. He has served as General Counsel for Baxter Bailey & Associates since 2010 and is licensed in Tennessee, Arkansas, and Mississippi. He is an active member of the Transportation Lawyers Association (TLA) and the Commercial Law League of America (CLLA), with published articles in Commercial Law World and The Transportation Lawyer. Please feel free to reach out at [email protected]