What Does Prepay and Add Mean in Shipping?

Prepay and add means the shipper pays the freight carrier at the time of shipment, then adds that freight cost onto the buyer’s invoice as a separate line item. The shipper manages the carrier relationship; the buyer ends up bearing the cost.

You will see it abbreviated as “PPD & ADD” or “prepaid and add” on bills of lading and purchase orders. It is one of the most common freight payment terms in North American shipping, and one of the least examined by the people paying for it.

How does prepay and add work on an invoice?

The shipper books the freight, pays the carrier directly, and then bills you for the goods with the freight charge added as its own line. You pay one invoice to the shipper covering both.

The sequence:

1. You place an order on prepay and add terms.
2. The shipper books the shipment with a carrier of their choosing.
3. The carrier bills the shipper, who pays it.
4. The shipper invoices you for the goods, with freight as a separate line.
5. You pay the shipper once, for both.

The critical detail is step 4. You are being shown a freight number, not a carrier invoice. Whether that number equals what the carrier actually charged is entirely up to the shipper.

Prepay and add vs prepaid vs collect

The three terms differ on two questions: who pays the carrier, and who ultimately bears the cost.

Term	Who pays the carrier	Who bears the cost	Who picks the carrier
Prepaid	Shipper	Shipper (absorbed, or built into the goods price)	Shipper
Prepay and add	Shipper	Buyer, via a line on the goods invoice	Shipper
Collect	Consignee, directly	Consignee	Usually the consignee
Third party	A third party named on the BOL	That third party’s account holder	Whoever holds the account

Read across the last two columns and the issue with prepay and add becomes obvious: the person choosing the carrier is not the person paying for it. There is no natural pressure on the shipper to route your freight cheaply.

When should you use prepay and add?

Prepay and add makes sense when the shipper genuinely has better freight rates than you do, or when the shipment is small enough that managing it yourself costs more than the difference.

Reasonable cases:

• The shipper’s rates beat yours. A large supplier with real volume may move your freight for less than you can, and pass on some of that.
• Low-value or one-off shipments where setting up a collect arrangement is not worth the administration.
• You do not want carrier relationships for inbound freight at all, and accept a premium for that.

Weaker cases, where it is usually just habit:

• Regular, repeating inbound lanes. Anything shipping weekly on the same route deserves to be priced properly.
• Heavy or bulky freight, where the absolute dollars are large enough that a markup matters.
• Any supplier who will not show you the carrier invoice. That refusal is itself information.

What is the risk of prepay and add?

The risk is that you have no visibility. You see one number on a goods invoice, chosen by someone with no incentive to keep it low, and you have no carrier invoice to check it against.

Three things happen quietly under this term:

• Freight markup. The shipper adds a percentage or a flat handling fee on top of the carrier’s charge. Sometimes disclosed, often not.
• Service level you did not ask for. The shipper picks the carrier and service. If they default to something faster than your delivery promise requires, you pay for speed you did not need.
• Accessorials passed straight through. Liftgate, residential delivery, limited access and reweigh charges land on your invoice without the underlying carrier documentation that would let you dispute them.

None of this is necessarily bad faith. Most of it is a shipping desk using the default in their system. But it is your money, and the term is structured so you cannot see it.

How do you take control of prepay and add freight?

Ask for the carrier invoice. If a supplier will produce it, you can verify the freight line; if they will not, that tells you the line is worth negotiating or the term is worth changing.

The practical options, roughly in order of effort:

1. Request the carrier invoice on every prepay-and-add shipment above a threshold you set. Many suppliers will provide it if asked.
2. Compare against your own rates. Price a representative shipment yourself. If your rate beats the added line consistently, you have a case.
3. Move regular lanes to collect or to your own routing guide, using your carriers and your rates.
4. Set a routing guide for inbound freight and tell suppliers to use it. This is what large shippers do, and it is available to smaller ones through a broker’s rates.

The last option is the one most mid-sized shippers never consider. Inbound freight is often a meaningful share of total shipping spend and is almost never managed, precisely because prepay and add makes it invisible.

Is prepay and add an Incoterm?

No. Prepay and add is a North American freight payment term. Incoterms are a separate international standard governing when risk and obligation transfer between seller and buyer.

The confusion is understandable because both appear on shipping paperwork and both concern who pays for what. But an Incoterm such as EXW, FOB or DAP defines where responsibility for the goods changes hands, including risk of loss, export clearance and insurance. Prepay and add says nothing about any of that. It only describes who hands money to the carrier and how the cost is recovered. A domestic shipment can be prepay and add with no Incoterm involved at all.

Where this connects to your shipping spend

Inbound freight on prepay and add is one of the most reliable places to find money in a mid-sized shipper’s cost base, precisely because nobody is looking at it. The line is on a goods invoice, so it gets approved by whoever approves purchase orders, not by anyone who prices freight.

Parcel Management Group prices LTL and full truckload so you can compare an added freight line against a real rate, and audits outbound spend on the small-package side. See how to reduce shipping costs at volume and parcel audit vs freight audit.