One of the most common questions people ask me is about the legalities of marking up freight on their customer invoices. Charging an extra amount on an invoice for freight is very common and companies rely on the extra revenue it produces so it's not surprising that this concern is so frequently brought up. The short answer it is, this is perfectly legal but there are some important things companies need to know about the way they go about marking up this line item to their customers.
First, there are scores of companies who tack on an extra amount onto the shipping portion of their invoice as an additional profit center, to cover packaging costs or to simply buffer themselves against unforeseen shipping charges. I've seen companies charge a varying amount from a few bucks all the way to multiples of what they are actually being charged by freight providers - all of which does not break any laws or codes of ethics.
Shipping versus Shipping & Handling
The most important part to charging an extra fee for freight or shipping is to disclose to customers in the purchasing terms that more than just freight is being billed. We've all heard of the term "shipping & handling". If a shipper is going to charge their customer a higher amount than what they are getting billed by their freight provider, then it is vital that this is disclosed with language such as "shipping & handling", "freight & processing" or some other verbiage that let's the customer know that they are not only getting billed for freight.
This wording needs to be backed up on the line item of the invoice as well. So if a shipper charges $10,000.00 for their product and $200.00 for "shipping & handling", than that needs to be broken down on the bill they are receive.
The Law Regarding "Shipping & Handling"
There is no legal code written on this topic however where it can get dicey with the law is if purchasing terms and invoices indicate that the customer will be charged for "freight" only and they end up charging more. By telling customers they will be billed for "freight" or "shipping", it is implied that the selling company is billing what they are getting charged for. If it ever came up in front of a jury, chances are the jury would favor the customer because the purchasing language can be misinterpreted.
Avoid Legal Woe's with "Shipping & Handling"
If someone is reading this right now and is charging their customers for a higher amount for freight, simply make it clear in the purchasing terms and invoices that you are charging something above and beyond freight. Similarly, if a reader is currently charging for freight only and would like to add a buffer or profit center, making the simple change in verbiage from "freight" to "shipping & handling" will take care of any legalities that you may be fretting about.
Marking up freight invoices on a line item of an invoice is common practice in the business world. Even using this as a profit center is commonplace. However, where companies get in trouble is by not disclosing to their customers that they are billing them for more than just freight. By simply being forthright to customers about this line item clears away any misunderstandings.
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