Collecting Freight Charges - What to do if your Customer doesn’t pay
Hopefully this will never be an issue for you, but if your Customer hasn’t paid your invoices you may be able to seek payment from the other parties to the bill of lading.
A broker is not a party to the bill of lading, but the carrier is, and when you pay the carrier you may be an assignee/subrogee of the carrier’s rights. Additionally, under the G&H Broker-Carrier contract you are authorized to invoice as agent on behalf of the carrier.
To understand the collection options the first thing you need to do is review the bills of lading. The statutes regarding freight charges are 49 USC §13706 and §13707 and the Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008) decision provides a good synopsis of the rules.
1. The shipper/consignor is primarily liable unless the “nonrecourse” provision, also referred to as “Section 7,” is executed;
2. The consignee is liable unless the bill of lading is marked “prepaid” and the consignee already has paid the shipper/consignor;
3, The consignee is liable if the bill of lading is marked “collect”;
4. The shipper/consignor and the consignee are jointly liable unless the provisions of 1, 2 or 3 apply;
5. The default rules can be modified by contract and only apply if the parties have not agreed to an alternative arrangement.
"Bill to" usually means "send freight bill to", i.e. send the freight bill to the broker, a paying agent, freight bill auditing company, but it doesn't necessarily equal liability and it definitely does not override the rules outlined above.
Once you have determined potential consignor and consignee liability, give your customer written notice that if they do not pay the outstanding amounts you will pursue collection against the other parties. It is very important to give the delinquent customer written notice of your intent, as it gives them an opportunity to pay you and prevent the collection action and so that they cannot make a “interference in contractual relations” claim against you.
If you have to make demand upon the other parties, it should be a written, factual statement describing the shipments at issue, the amount owed and the law and facts as to why you are entitled to collect from them. It is fine to say “We are contacting you because XYZ Company has failed and refused to pay.” But no matter how tempting, don’t write: “XYZ Company are a bunch of lying, cheating scumbags that don’t pay their bills”, as that could prompt a libel or interference claim against you.
It is proper and acceptable to follow up a written demand with a phone call to make sure they received the demand letter and supporting documents, find out if they need any additional information to identify the shipments or the charges, and ask them for a contact person to discuss the claim etc. Be prepared to negotiate and settle as it is always better to get something. If you settle with the other party, they may want a written acknowledgement of settlement and release. The settlement and release should only apply to the company making payment, and not release the original defaulting customer.
If you have any questions or would like to discuss collection issues, feel free to call us.