Freight Payment and Auditing Services: Finding the Hidden Gold
They may be designed to perform a straightforward function, but freight bill payment and auditing services can also reveal money-saving operations data.
Shippers spend an average of 54 percent of total logistics expenditures on transportation, according to The State of Logistics Outsourcing in 2010, an annual report produced by CapGemini, the Georgia Institute of Technology, and Panalpina. Considering the enormities of those costs, shippers have much to gain by ensuring their freight invoices are accurate and paid on time.
As a result, many shippers choose to outsource freight bill payment and auditing to businesses that specialize in providing such services. But, as many companies that utilize these services realize, there is more to freight bill payment and auditing than meets the eye. While these services may appear to perform a single function, they add value by delivering key data that can uncover insights about a company's operations.
Following the Freight BILL Payment Process
Traditionally, shippers negotiate contracts with one or more carriers to ship products around the country or around the globe, then hire freight bill payment and auditing companies to review contracts, rates, and tariffs, and audit incoming invoices. The audit ensures the bills' validity; checks mileage, accessorial charges, and tariff usage; verifies it is the correct customer's invoice to pay; and confirms the bill is not a duplicate.
Once the audit function is complete, the invoices are aged to their negotiated payment terms. The freight bill payment and auditing company then submits payment on the shipper's behalf, and provides reports that help complete their general ledger account coding.
"Freight bill auditing gives companies an immediate return on investment," says Allan Miner, president of Cleveland, Ohio-based CT Logistics, which has been offering freight payment cost allocation and reporting solutions for 88 years. "They immediately know that they are paying out the correct amount and don't have to search for mistakes or overbilling on their own."
Checking these facts can make a significant financial impact. "Historically, the most important aspect of freight bill payment and auditing services has been cost savings," says Brian Scott, vice president of global sales for CTSI-Global, a Memphis-based company that has been providing logistics services since 1955. "Some carriers overbill, so those savings can add up. They are usually honest mistakes, but they happen. Our goal is to find those mistakes so shippers don't overpay."
Fuel tables that are set up incorrectly can be a source of overbilling, as can accidental charges for items that are excluded by contract. "Someone manually enters this information, so mistakes can occur—at up to as much as a two to four percent error rate," says Scott. "International shipping leaves even more room for mistakes. It's complicated, and more prone to errors. The error rate can climb as high as 10 percent."
A Money-Saving Function
In addition to catching errors, freight bill payment and auditing services can save shippers significant labor and other internal costs. The freight bill payment and auditing service provider can process and manage invoices much less expensively due to simple economies of scale. Considering today's challenging business environment, these types of savings can go a long way.
"Companies today face greater challenges than ever before," says Harold Friedman, senior vice president of global corporate development at Fort Myers, Fla.-based Data2Logistics, LLC. "The economy is sputtering along, and carrier prices are rising as many carriers are leaving the market and not being replaced.
"Couple that with fuel surcharges, and it's difficult for companies to reduce costs—yet there is a lot of pressure on them to do just that," he adds.
Freight charges often represent up to 10 percent of a company's total expenses. Freight bill payment and auditing services can help companies more easily track and examine where their dollars are going and ensure they are paying the correct fees for the services they need.
"It's important to understand your true landed costs," says Tom Zygmunt, manager of marketing for Cass Information Systems, Inc., a Missouri-based corporation that provides freight invoice audit, payment, business intelligence, and transportation/financial analytics through the Internet.
"Today, expense management is critical to a firm's survival, so understanding the true cost of moving a shipment from Point A to Point B is essential to control transportation expenditures," he says.
In Expert Hands
In 2010, approximately 40 percent of North American firms outsourced some part of their freight bill payment activity, according to The State of Logistics Outsourcing. Maintaining control and performing audit and payment services internally can be challenging, because most shippers don't have adequate resources to do it correctly.
The expertise needed to catch mistakes quickly and easily does not come overnight. Freight bill payment and auditing companies have developed specific knowledge and sophisticated technology systems that allow them to find errors that might otherwise slip by. While cost savings depend on the nature of the industry, typical savings on rate overcharges and duplicate payments alone can range from 1.5 to five percent, Scott says.
"It costs shippers between $3 and $11 to process a freight bill internally," says Friedman. "No matter which vendor they choose to handle freight bill payment and auditing services, shippers will pay a fraction of that cost."
In addition, many shippers use dated technology systems that are not capable of performing an efficient and effective bill audit. Even newer enterprise resource planning systems are primarily designed to capture payment data, and are not robust enough to allow shippers to manage the entire process.
"Freight bill payment providers specialize in managing transportation expenses," says Miner. "They are committed to using the latest technology."
In addition, while freight bill payment and auditing companies focus solely on that function, shippers have many other aspects of their business to handle, which can mean freight bills are checked only sporadically, or not at all.
Freight bill payment and auditing services are worth their weight in gold, says Carman R. Stripling, corporate transportation manager at flooring company Mohawk Industries in Calhoun, Ga. "We need to focus on our core competencies, not auditing invoices," she notes.
Leaving freight bill payment and auditing to the professionals also ensures faster and more accurate results. "Our automated audit process can catch more mistakes than an average shipper can in-house," says Scott. "We can analyze the invoices more quickly, efficiently, and less expensively."
Examining the Details
In addition to the basic benefits of freight bill payment and auditing services, the data that a company can glean from using such services can be even more valuable. This is where the true bang for the buck surfaces.
The automation and reporting tools freight bill payment and auditing suppliers often employ can allow a company to closely analyze where it is spending its money.
"The insight the reporting tools provide can lead companies to make important cost-cutting decisions, such as changing carriers," says Miner.
Using the data that's collected can allow a company to better manage its entire transportation process. "Companies can save 10 to 20 percent on transportation costs by truly managing the whole process," says Scott. "When they see the whole picture, they can identify consolidation opportunities, cut unnecessary premium freight or next-day delivery spending, and trim costs by making smarter transportation decisions."
Over the past five to seven years, the freight management industry has evolved under pressure from both the economic downturn and corporate finance recordkeeping regulations. Those two factors have increased scrutiny on spending, according to Keith Snavely, senior vice president of global sales and marketing for McDonough, Ga.-based nVision Global.
"The data we supply shippers helps them better manage their supply chain and analyze costs," he says. "That ability has become more important to shippers over the past several years."
Because back-end accounting is done automatically and systemically, freight bill payment and auditing processes provide data companies can use to analyze their expenses, identify cost-reduction opportunities, and make good business management decisions.
For example, a consumer goods company can see at the product level how much it costs to deliver freight to certain clients. Based on what it finds out, it can then decide if it needs to adjust pricing for those clients.
Stripling concurs that the data is extremely valuable to shippers such as Mohawk. "We need to be able to gather payment and shipment data, and analyze it to make smart business decisions," she says. "The data we are able to glean is limitless, and its value is very high."
It's not hard to see why shippers appreciate the data insight freight bill payment and auditing services provide.
The Future is Global
Today's global supply chain demands managing international shipping data. Hiring a freight bill payment and auditing service can help.
"Many clients want us to get into the international arena for them," says Miner. "Companies recognize that logistics and supply chain costs are impacted by non-U.S. based activity. International invoices are very complicated, and require handling by personnel who are multilingual and proficient in foreign currencies."
Whether shippers are concerned with international activities or are focused on domestic activity, freight bill payment and auditing services are growing in popularity and provide valuable benefits.
According to Stripling at Mohawk, freight bill payment and auditing services are a tremendous benefit not only from a business streamlining and intelligence standpoint, but also from a budgetary perspective.
"We have gleaned enough savings from using these services that they basically pay for themselves," she says. "And all the great data we have as a result is an additional benefit that is practically free."