Beware of off-bill discounting

Henry Seaton is a lawyer who represents carriers in contract disputes, collection matters, cargo claims and insurance questions. E-mail [email protected].

Q We are a carrier. A shipper with whom we have a discount has asked us to submit invoices for the full amount and to then provide the discount by virtue of a credit or payback at the end of the month. Can we legally submit invoices that do not disclose a discount, rebate, volume allowance, etc.?

A Such “off-bill” billing practices are illegal and are expressly prohibited by 49 U.S.C. Sec. 13708. This statute, which applies to regulated motor carriers, requires that invoices disclose the “actual rates, charges and allowances for any transportation services” and “whether and to whom any allowance or reduction in charges is made.”

This prohibition against off-bill discounting applies to shippers and brokers as well. Subsection B provides that “no person may cause a motor carrier to present false or misleading information on a document about the actual rate, charge or allowance to any party to the transaction.” In other words, it’s illegal for a shipper or broker even to ask you to do it.

The reason for this tough language is clear. Consignors frequently are asked to ship on a “prepay-and-add” basis. And often, nationwide shippers grant their customers a “freight allowance” equal to the cost of transportation. Thus, there is great opportunity for consignors to cheat their customers on prepay-and-add situations by showing them carrier freight bills that are higher than the rates that were actually paid. Similarly, by using off-bill discounting, a consignee could claim a larger freight allowance than its actual transportation cost. The requirements of Sec. 13708 stop these opportunities dead in their tracks or at least protect a carrier against unwittingly becoming involved in such fraudulent practices.

There are, of course, legitimate volume discounts, loading allowances and so on, the actual value of which may not be determinable on an invoice-by-invoice basis. The statute contemplates this and provides that:

“Where the actual rate, charge or allowance is dependent upon performance of a service by a party to the transportation arrangement, such as a tender of volume of freight over a stated period of time, the motor carrier shall indicate in any document presented for payment to the person directly responsible to the motor carrier that a reduction, allowance, or other adjustment may apply.” See 49 U.S.C. Sec. 13708(c).

This provision extends the prohibition against “off-bill discounting” to the situation in which a customer urges its vendor to use a carrier of choice. Even if the vendor and the carrier negotiate an acceptable rate, if the consignee received an unloading allowance or other credit, the freight invoice to the vendor should clearly note “consignee incentives, unloading allowances, volume discounts, etc. may apply.”

My advice would be to take a straight arrow approach towards compliance with the statutes governing off-bill discounts. Feel free to use this article if you need support. I am not so naive as to think that everyone abides by the off-bill discount statute. And I recognize that there is little likelihood of civil or criminal prosecution for violating it.

But consider this. Under Sec. 14704, a shipper or consignee who relies on a carrier invoice to pay its customer or vendor an undiscounted freight allowance, can, upon discovering it has been defrauded, bring the carrier into the resulting lawsuit. This is because a carrier can be held liable for damages sustained by a party injured as the result of an act or omission of the carrier in violation of the Act. Violation of Sec. 13708 would qualify and give the injured party access to federal court, as well as an award of reasonable attorney’s fees.