Review Your Options
When we say “freight audit and payment,” we're referring to the entire, complex process that begins with receiving an invoice and ends with paying it. Shippers with high volumes of freight invoices use one of three methods for managing freight audit & payment:
- Outsource to a specialty provider
- Build your own home-grown solution
- Purchase a payment module from your TMS or ERP provider
If you have a DIY model or a provider who is less than stellar, this article will explore why it might be time to consider other options.
Here are the 5 top dangers you'll want to avoid in freight invoice audit and payment:
- #1 The Danger of Inherent Complexity
- #2 The Danger of Processing Shortcuts
- #3 The Danger of Underestimating Processing Costs
- #4 The Danger of Poor Carrier Relations
- #5 The Low-Cost Fallacy
Let's explore each of these in more detail.
The Danger of Inherent Complexity
Freight invoice processing & payment are complicated
- Every carrier has its own rate structure.
- Invoice errors are common. It’s easy to be
- Allocating costs to the proper internal GL accounts is difficult without detailed information.
- Posting accruals can be even worse without the right controls and precision processing tools.
A closer look at the complications
Auditing is more than the shipping rate, it’s about processing against all the rates and rules.
Basic linehaul rate factors
- Weight and size/volume of the shipment
- Type of equipment – from straight trucks to double trailer combinations – at least 12 variations exist in over-the-road shipping.
Many other equipment variables, including:
- Equipment type: flatbed, bulk, dry van, tanker, etc.
- Refrigeration & other temperature controls
- Vehicle length and widths
- Trailer settings
- Axle weights
Additional accessorial costs include:
#2 The Danger of Processing Shortcuts
It's easy to oversimplify the process
It’s very common to lump shipping accessorial charges together. Many shippers can't break out accessorials from the basic linehaul rate. The dangers of doing this are:
- Inability to accurately audit accessorials.
- Not understanding why costs are going up.
- Not being able to evaluate one carrier’s costs vs. another’s. (If you compare using linehaul rates alone, you could be making a big mistake.)
When shortcuts are taken, you lose visibility to true transportation costs.
Given the high cost of transportation and the complications involved in freight payment, many shippers rely on the valuable expertise of outsourced freight payment service providers to:
- Validate invoices against complex business rules.
- Audit invoices against complex rate structures.
- Manage exceptions, data, and business rules.
- Report on transportation spend.
Let's explore each of these in more detail.
Validate Invoices Against Business Rules
Outsourcing provides superior controls.
Using an outsourced freight audit and payment solution ensures strict compliance with your validation and processing requirements. This includes verifying liability and shipment validity, making sure duplicate invoices are not paid, and much more.
Processing shortcuts are eliminated so that no invalid invoices continue through the payment process. In addition, business rules are automated wherever possible and kept current to provide the strictest processing controls available. Validation files, edits, and strict processing controls also ensure that data is accurate, whether received electronically or entered manually.
Audit Freight Invoices Against Complex Rate Structures
Outsourcing delivers greater savings.
Most businesses today have limited to no resources that specialize in auditing freight charges. Due to the complexity of freight rates, it's also a difficult task to make sure the correct charges are being applied to the freight invoice.
Most freight payment providers have worked with hundreds of shippers. They’ve seen just about every auditing need, unique contract clause, or accounting rule that a shipper might have. What’s a new challenge to you is one they have already solved for someone else.
Robust freight rate repository systems are also needed to make sure that all of the current freight rates can be applied for audit purposes. The use of an outsourced solution provides the latest rate management technology, as well as the expertise to provide the highest level of audit savings.
Outsourcing keeps things moving smoothly.
Freight invoices are not a typical payable. They are more complex and are prone to payment exceptions. These exceptions require additional research and interaction with carriers who are requesting payment.
Using online exception management systems provides full transparency to invoices needing resolution in a true workflow environment. Ease of use and speedy resolution are at your fingertips.
With an outsourced provider, you reduce your per-invoice processing expense while you ensure the payment is made correctly and within your negotiated payment terms.
Report on Transportation Spend
Your outsourcing partner will deliver better data.
Outsourced freight payment providers offer robust business intelligence that is extracted from invoices and other files. This paid data allows for information to better support the management of transportation activity and rate negotiations.
Enhanced business intelligence provides significant opportunities for reducing your transportation spend. In many cases, transportation expense data is not readily available through internal accounts payable systems. By using an outsourced solution you are provided integrated information that you can use to control your expenses.
Shippers can typically access this information via ad-hoc online reporting or via transportation, accounting, accrual, and other data files.
#3 The Danger of Underestimating Processing Costs
Shippers who process in-house sometimes underestimate the high cost of doing so.
- How much time is currently invested in processing and paying freight bills?
- What about all of the supporting efforts, such as system development and maintaining rates?
- What percentage of carrier overcharges do you think you’re missing?
- Which carriers create extra cost/work because of their poor invoicing processes?
In-house processing costs include:
- File and validation maintenance
- System changes
- EDI and document imaging support
Direct labor related to invoice receipt and processing
- Mail processing (manual invoices)
- Invoice and backup documentation verification
- Data entry (manual invoices)
- Exception invoice research and resolution
- Payment processing
Direct labor related to invoice audit
- Rate and database maintenance
- Audit exception review and approval
Indirect labor related to the process
- Check/electronic payment processing
- General ledger allocations
- Carrier invoice payment inquiry activities
- Banking reconciliations
Technology and equipment
- Servers, PCs and other related technology equipment
- Software licenses/subscriptions and upgrades
- Telecommunications equipment and services
- Other supporting software
Other cost factors
- Supervisory overhead
- Banking account, check, and electronic payment fees
#4 The Danger of Poor Carrier Relations
It’s simple: To maintain high service levels from your carriers, you must pay them within negotiated terms. A habit of late payments can lead carriers to serve other clients first. With today’s driver shortage and tight capacity, this is a very real threat.
Making it easy for carriers to check payment status and exception invoices goes a long way as well.
#5 The Low-Cost Fallacy
This may be the worst trap of all: It’s a complacency based on the notion that if our current freight invoice processing costs are minimal, we must be a best practice.
Look below the surface: Yes, the invoice was paid, but was it accurate? How much manual effort was involved? And did you capture each cost separately?
Your freight audit and payment system should:
- Maximize processing automation
(reduce manual processes)
- Maximize audit savings
- Provide access to detailed transportation costs
- Effectively handle exceptions
- Handle carrier payment inquiries
Pro Tip: Over-controlling your cost to process a freight invoice can mean increasing your total costs for freight.
Rethink Your Options
Companies continue to look for ways to reduce and control their expenses. For freight audit, payment, and business intelligence solutions, it may be time to rethink your options.
- Is your current In-house processing system/software meeting your
- Is your current outsourced provider meeting your expectations? Are they poised to meet your future needs?
If you answered no to these, perhaps it's time to talk to Cass.
Working with an outsourced provider, you will:
- Gain expertise by leveraging the outsourcer’s broad experience in the freight payment industry.
- Avoid overpayments and duplicate payments.
- Allocate costs to proper GL accounts and accrue costs accurately.
- Understand your true costs. You’ll have actionable, reliable data you can leverage when you procure services.
- Liberate your valuable in-house resources.
With so many benefits to gain, what do you have to lose? Talk to Cass today to start getting your freight payment and audit under control.