When implementing our Advance Ship parcel solution, I regularly need to explain how to correctly handle carrier billing options in SAP. To make this discussion simpler, I’ll explain the three main options for domestic billing from a typical small-parcel carrier, then give you some examples.
The typical domestic parcel carriers support the following three options for billing shipping charges on parcels:
Prepaid – Charges paid by the shipper.
Collect – Charges paid by the recipient.
Third party – Charges paid by a third party to the shipping transaction.
Seems pretty straightforward, right? Not so fast. On a typical SAP sales order, do you know how these relationships should be represented?
The simplest scenario is prepaid. In this scenario, when you ship an order to a customer, the shipper pays the freight. This is pretty straightforward. Most likely, if you ask your warehouse to ship an order, they will ship it using your own prepaid account.
How about collect? Collect is when your customer asks you to ship an order to them and use their carrier account number. This can occur if a customer has negotiated terms and rates that they want to benefit from. To be considered collect, the ship-to location is also the location that owns the account you submit to the carrier.
Lastly, there’s the trickiest option, third-party billing. The key to third-party billing is to consider this from the view of the carrier, not you, the shipper. When given a shipment, the carrier knows the shipper (you) and the consignee (Ship-to in SAP). So, if you want to bill anyone other than one of those two parties, it is considered a third-party billing transaction. Note: it is typical for a company to have a carrier account number for each of their locations. So, in a routine order that is placed by a customer (Sold-to), that requests the order to be shipped to their distribution center, possibly in a different state (Ship-to), this may be considered a third-party transaction if the Sold-to uses their account for deliveries to their distribution center. This is because the ordering party is not party to the transaction from the carrier’s view (you rarely share the Sold-to when processing a parcel package).
This should make it easy to understand when to use each billing option. If you have questions, feel free to drop us a note.
Phil Avelar is a Senior SCM consultant at Advanced Solutions, based in Chicago. He shares his passion for solving customers problems in his blog posts, industry articles and talks. When he’s not writing, he’s working with customers to develop and apply innovative solutions to common problems in the supply chain.