Freight Collect and Freight Prepaid are familiar terms in international trade, but newcomers can easily confuse them. This article explains what they have in common and how they differ.
Definitions
Freight Collect means freight is payable at destination, generally by the buyer or consignee under the arrangement described.
Freight Prepaid means freight is payable at origin, generally by the shipper. The source describes payment before loading under the arrangements it discusses.
What the terms have in common
Both concern freight charges
Both terms refer to payment of the transportation charge for the goods.
A shared payment purpose
The source describes both arrangements as helping the carrier manage freight payment exposure:
Where the seller arranges carriage and pays prepaid freight, the consignee completes the documentary collection process at destination.
Where the buyer arranges carriage on a collect basis, freight must be paid as required before cargo release.
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Differences between Collect and Prepaid
Understanding the distinction helps cargo owners manage their import and export transactions. The main differences include:
Where freight is paid and by whom
Collect freight is paid to the carrier at destination, generally by the consignee or buyer. Prepaid freight is paid at origin, generally by the shipper or seller.
Association with different sales terms
The payment arrangement is commonly linked to the transport responsibilities in the sales contract.
The source associates Freight Collect with EXW and FOB, where the importer arranges and pays for the main carriage, avoiding the seller advancing that cost.
It associates Freight Prepaid with CFR, CIF, DAP, and DDP, where the exporter pays the main freight so the importer is not required to settle that amount at destination.
The freight payment indication appears on the House Bill of Lading (HBL) and Master Bill of Lading (MBL).
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Can the HBL and MBL show different payment terms?
Yes. The source gives an example where the MBL shows Prepaid and the HBL shows Collect, involving origin and destination forwarders and an EXW or FOB sale.
The origin forwarder books directly with the shipping line and pays that carrier, while the destination-side arrangement recovers freight from the importer. The MBL therefore records the carrier-facing payment as Prepaid, and the HBL can record the customer-facing payment as Collect.
The source also discusses the origin forwarder's control over release to protect settlement between the parties, subject to the relevant contractual rights.
We hope this comparison helps you understand the two freight payment arrangements and discuss them clearly in your trade contracts.