Threats in Freight Invoice Audit & Payment shippers
Let’s start by reviewing your options.
Your three options for managing your freight payable:
- Outsource to a specialty provider such as Transportation Cost Recovery
- Use/build a home‐grown solution
- Use the payment module from your TMS or ERP provider
If you’re processing in‐house now, given today’s high freight costs and, for some shippers – scarcity of transportation resources – it may be time to rethink your options.
When comparing freight costs year over year, we continue to hit all‐time highs.
Since 1990, the Transportation Cost Recovery Freight Index™ has been a trusted measure of North American freight volumes and expenditures. Our monthly Transportation Cost Recovery Freight Index Report provides valuable insight into freight trends as they relate to other economic and supply chain indicators and the overall economy. Transportation Cost Recovery indexes are used by the Wall Street Journal®, Bloomberg®, and many other research and reporting agencies.
The Transportation Cost Recovery Truckload Line haul Index shows that truckload rates have been rising steadily for the last four years. Experts predict that the combination of tight capacity and higher shipment volumes will push costs up faster in the remainder of 2014
Top Dangers in Freight Payment: total costs of transportation.
Here’s what the pros know about the relationship between invoices and total costs of transportation.
The Danger of Inherent Complexity
1 Freight invoice processing & payment is complicated.
- Every carrier has its own rate structure.
- Invoice errors are common. It’s easy to be over‐charged.
- 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 line haul 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:
- Stop‐off charges
- Labor / loading / unloading fees
- Detention / demurrage charges
- Hazardous material charges
- Lift gate charges
- Re‐consignment or diversion changes
- Re‐weigh (if shipment weight differs from order)
- And others
2 The Danger of Processing Shortcuts Freight invoice processors sometimes oversimplify
It’s very common to lump shipping accessorial charges together. Or even, not be able to break out the “extras” (accessorial) from the basic line haul rate. The dangers are:
- Inability to accurately audit accessorial.
- No understanding of whether costs are going up because of fuel or because of other accessorial charges.
- Not being able to cleanly evaluate one carrier’s costs vs. another’s. (If you compare using line haul rates alone, you could be making a big mistake.)
Given the high cost of transportation & complications in paying for it, many shippers rely on the valuable expertise of outsourced freight payment service providers to:
VALIDATE AUDIT MANAGE REPORT
Validate invoices against complex business rules
Why outsourcing provides superior controls.
Validate Invoices Against Business Rules
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 Invoices Against Complex Rate Structures
Most businesses today have limited to no resources that specialize in auditing freight charges. Due to the complexity of freight rates, it is 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.
Manage exceptions, data and business rules.
Why 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.
Why your outsourcing partner will deliver better data.
Report on Transportation Spend
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 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
- 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
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
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
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
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 why did it cost what it cost? 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
Let’s rethink your options…
Time to make a change?
- Is your current in‐house processing system/software meeting your needs?
- Is your current outsourced provider meeting your expectations? Are they poised to meet your future needs?
Companies continue to look at ways to reduce and control their expenses. For freight audit, payment and business intelligence solutions – it may be time to rethink your options.