24 Feb The Mechanics of Freight Payment Companies
Freight payment can be a relatively simple concept. However, the practice is often complex and unique to the partner you select. Your company must understand the basic process to better evaluate the myriad of freight payment companies in the industry. This article is dedicated to educating shippers as they prepare to outsource or implement carrier payment through a third party.
How Freight Payment Companies Work
Freight bill auditing and payment is a collection of processes that can be considered, speaking generally, an accounts payable service for transportation invoices. Freight payment companies act as an intermediary between the shipper and the carrier to receive, process, audit, and pay freight bills. Every potential partner is different. Each firm should be able to disclose detailed information about the method and tools that deliver transparency to where the bills are at in the payment life-cycle. In nearly all instances, invoices are sent directly to the freight payment partner. Upon receipt, each bill should step through the following process:
Invoice Receipt & Data Capture
Freight invoice delivery can occur through a variety of different formats. The most common include paper bills sent via the mail or electronically via EDI. Upon receipt, freight payment companies must be able to capture data and information from the invoice, bill of lading, and supplemental documentation so as to create a comprehensive database of information for both processing and reporting. By so doing, shippers can more readily evaluate the shipping activity that affects the supply chain. Flexibility in data capture is critical. Consistency also plays an important role. The tools, checkpoints, and methodologies of each potential partner should be an area of research prior to signing an agreement.
Freight Bill Audit
During the implementation process, most freight payment companies will collect carrier contracts to implement an audit on invoices received from the carrier. The breath and scope of the audit can vary across providers as there are no standardized audit controls in the industry. Your potential partner must be flexible and transparent in the development of a customized audit policy that best balances your company’s objectives. Typically, freight payment companies will audit for duplicates, services failures, and rates. However, a customized audit will extend to accessorials, fuel, and fine-print references in the contract. Shippers that work hard negotiating freight contracts understand the value of a comprehensive audit that is customized to their unique agreement. The cost savings tied to a comprehensive freight bill audit is one of the primary reasons why a shipper outsources.
A special note on Freight Bill Validation: Upon receipt of invoices, freight payment companies should be able to work with shippers to further validate and audit each invoice according to both an internal shipping policy and company routing guide. The management of erroneously shipped or invalid transactions can further optimize a supply chain and reduce unnecessary cost.
Systematic Cost Accounting
The accurate cost allocation of freight expense is an important service feature of every freight payment process. Freight payment companies must be able to apply a valid general ledger code(s) to carrier invoices based upon the rules provided by the shipper. These rules are typically driven by data elements present on the freight invoice or bill of lading. Exceptions, or transactions that fail to code based on rules applied, can occur frequently. Online access to manage these exceptions must be available to the shipper.
Carrier Funding
After a bill is received, audited, and processed, freight payment companies will typically create a consolidated funding request to pay carriers. The process and oversight by which a shipper delivers, monitors, and validates freight payment must be transparent. An absence of visibility can result in mismanagement. Payment requests and disbursements are typically made weekly. A freight payment partner should be able to implement negotiated terms so as to maximize cash flow for the shipper. Carrier funding will typically occur via ACH or manual paper check.
Reporting & Business Intelligence
With the advance of the Internet, shippers will now have access to dozens of pre-formatted reports. Nearly all freight payment companies offer reporting through their web portals. These reports can assist the logistics team in analyzing known areas of cost reduction. Those may include a review of erroneously-billed accessorial charges or unauthorized third party shipments. However, business intelligence tools that target the unknown factors affecting the shipping program can be incrementally more valuable. Many logistics professionals are tasked with shipping optimization and transportation cost reduction. A freight payment company must offer reporting that allows a user to drill deep into shipping activity, create charts and graphs that illustrate patterns, and take aim at practices that adversely affect the supply chain.
Empowered with the Freight Payment Basics
Knowledge is power. Understanding the mechanics of how freight payment companies operate is the first step toward selecting a provider that best balances your objectives. If you would like to learn more about freight payment services, set up a logistics consultation and demo request with a SSI today.