Who Pays for Freight?

One commonly overlooked, but essential, value in EDI purchase orders is the shipment method of payment, which defines who pays for the transportation of goods. This value is included in the 850 Purchase Order and the 875 Grocery Products Purchase Order.

Customers send shipment information in different ways so it can be challenging to interpret their EDI data correctly. The key is to understand the options and how to relate them to your internal shipping methods.

In this post, we break down how the shipment method of payment is used in EDI documents and what buyers and sellers need to know to ensure accurate, compliant logistics.

What is Shipment Method of Payment?

The shipment method of payment indicates who is responsible for the freight charges in a transaction. This is usually a choice between:

• Prepaid – The seller pays the freight.
• Collect – The buyer pays the freight.
• Third Party – A designated external entity pays the freight. For example, an external warehouse (3PL) may handle freight payment as part of their services.

This information helps all parties understand their obligations before goods are shipped, reducing disputes and clarifying cost expectations.

Why it Matters

Incorrect or missing shipment payment terms can lead to:

• Disputes over freight charges
• Delays in payment processing
• Risk of non-compliance with trading partner agreements

Getting this detail right up front helps ensure smoother transportation planning and billing.

Where It Appears in EDI 850 and 875 Transactions

850 – Retail Purchase Order

In an ANSI X12 850, the shipment method of payment is in the FOB segment, element one (FOB01). This value is a predefined ID code that describes how the shipment cost will be paid. FOB01 is typically paired with element two (FOB02), a location qualifier. FOB02 defines the location at which the buyer assumes ownership of the shipment.

There are many possible codes for FOB01, but the most used values are:

• PP – Prepaid (by Seller)
• CC – Collect
• TP – Third Party

What This Looks Like

• FOB*PP*OR~
  • This means the shipment is prepaid and the point of title transfer is at the origin.
• FOB*CC*DE~
  • This means the shipment is collect and the point of title transfer is at the destination.

875 – Grocery Products Purchase Order

Grocery orders (ANSI X12 875), include the shipment method of payment in the G66 segment, element one (G6601). This value is a predefined ID code that describes how the shipment cost will be paid. G6601 is typically paired with element two (G6602), the transportation method. G6602 defines how the shipment should be sent.

There are many possible codes for G6601, but like FOB01 the most used values are:

• PP – Prepaid
• CC – Collect

What This Looks Like

• G66*PP*T~
  • This indicates the shipment is prepaid and the shipment method is up to the seller (best way).
• G66*CC*M~
  • This indicates the shipment is collect and should be sent via motor (common carrier).

When FOB or G66 Aren’t Used as Expected

Although EDI follows a defined standard, in practice it is more of a guideline. Aside from a few mandatory values, customers can choose where and how to send their purchase order information. If your customer does not use the FOB or G66 segment in the traditional way, it is still possible to define the ship method of payment accurately. For example, many customers send a transportation method/type in TD504 (850) or G6602 (875) with the expectation that the payment method will be inferred from that. Customer Pickup is assumed to be collect, Motor is assumed to be prepaid, etc. In this case, your 850 or 875 map will require additional logic to derive the payment method from the transportation type.

Conclusion

Correctly interpreting the shipment method of payment in your 850 and 875 transactions is essential for managing shipping responsibilities and avoiding billing issues. DCS helps companies understand and troubleshoot these EDI elements to ensure transactions meet both compliance and operational goals.

If you need help updating your EDI maps to include additional logic, or assistance interpreting your trading partner’s requirements for transportation, contact us today! We will help you get it right and eliminate order pain points.