Freight Payment & Audit Services: Beyond Bills
Freight payment and audit services used to be all about billing accuracy. Now they also deliver financial insights through pre-payment auditing, reporting, benchmarking, and analytics tools.
Freight payment and audit services have evolved considerably beyond their one-time scope of correcting errors and recouping spending for already-paid freight bills, particularly in the United States. Today, shippers want payment accuracy and far more from their data. They want to glean the same insights from their global transportation moves as they’re getting from their domestic carrier data—supply chain visibility as well as the opportunity to pare costs to the bare minimum.
A segment of the freight payment service provider community is responding by offering an increasingly robust array of pre-payment auditing, reporting, benchmarking, planning, and analytics tools that are helping shippers ensure data integrity and improve supply chain decisions. They are also taking on the sometimes arduous task of understanding the laws, business practices, and translations necessary to do business in non-U.S. markets.
Shippers don’t always fully recognize those expanded offerings. “Companies underutilize our services and capabilities because they think they need to go outside our partnership to get certain types of functionality,” says Allan Miner, president of CT Logistics, a Cleveland-based freight bill payment services company. “But we probably offer more than 90 percent of the services they need.”
Shippers who recognize that some freight payment service providers now offer vastly enhanced capabilities are reaping the benefits. “For many years, we were merely processors and information producers,” says Harold B. Friedman, senior vice president, global corporate development for Data2Logistics, a freight payment company based in Ft. Meyers, Fla. “Now we are trusted advisors.”
Pre Versus Post
Service providers differentiate post-payment audit from pre-payment audit. Audits conducted after carriers have already been paid focus on finding overcharge errors in those invoices, information the service provider or shipper can use to recover funds. This business model often means shippers don’t bear any upfront costs for invoice processing; the freight payment services firm typically keeps about 30 percent of any funds they recover.
Pre-payment audit firms scrutinize unpaid invoices, often collaborating with shippers and carriers to work out discrepancies in advance of payment. Shippers pay a fee for the service, rather than sharing the recovered funds with the service provider. Some service providers make payments on behalf of shippers in countries and currencies where they are authorized to do so. Others provide data back to shippers – including when to pay – and the shipper makes the payment.
A major benefit of audited freight bills is the accurate data they produce about all of a company’s transportation moves. That’s a basic building block of sound corporate and supply chain management: companies can allocate transportation costs accurately and undertake processes such as supply chain planning, route optimization, and carrier rate negotiation based on fully vetted data.
Currently, many shippers continue to use post-payment audit, and a sizeable number don’t undertake any freight payment audit at all. A minority of shippers use pre-payment audit.
“Major shippers are realizing they need to audit pre-payment using an automated solution,” says Phil Marlowe, president and founder of Charlotte, N.C.-based freight payment provider Acuitive Solutions. “Freight payment ultimately impacts many other processes, and if companies don’t handle it properly, there can be downstream implications.”
The economy has also impacted how shippers choose freight payment service providers. “The 2008 recession drove prices down via low-cost providers offering minimal services, and attracting shippers with a mandate to slash costs no matter what,” says Brian Scott, senior vice president, global sales, for CTSI-Global, a supply chain management solutions provider headquartered in Memphis, Tenn.
Many companies that switched to low-cost services are returning to their former providers, however, because the bargain services did not deliver adequate systems, tools, and access to data.
Freight Payment Goes Global
Shippers are increasingly extending their supply chains into new markets around the globe, and taking their expectations about freight audit and payment along with them. This shift has challenged freight payment service providers to expand their domestic expertise to global markets that may be unfamiliar with the freight payment business model.
“In Europe and Asia, we may have to start from scratch to get companies’ buy-in and educate them on the features and benefits of freight payment and audit as an outsourced solution,” says Keith Snavely, senior vice president, sales and marketing at nVision Global Technology Solutions, a McDonough, Ga.-based freight payment and audit services provider.
These specialized needs are driving leading freight payment companies to open strategically placed overseas offices and develop relationships with knowledgeable resources in countries where clients are expanding their businesses. nVision Global, for example, maintains offices in Atlanta; San Jose, Costa Rica; the United Kingdom; and China, and processes invoices for 190 countries. Several providers with a presence in Europe and Asia are now expanding to Latin America and South America.
No one yet offers expertise across all verticals and around the globe, says Steve Layne, chief operating officer of Greenville, S.C.-based freight payment and audit provider Trendset Information Systems. “Some freight bill auditors claim they can audit any invoice, via any mode, between any origin and destination, anywhere on the globe, but the reality is, many nuances and differences exist,” he says.
Working with Global Carriers
Because freight bill audit and payment is a relatively recent concept in non-U.S. locations, service providers work closely with both shippers and carriers to establish business processes for collecting the required data in the correct formats, to automate that data collection and roll the results into accurate global views.
“Outside North America, general bill statements are common—they don’t contain much detail,” says Friedman. “As companies require shipment-level detail, carriers now need to create a detailed bill instead of a statement.”
Many leading freight payment and audit service providers offer multiple options for carriers to submit freight bill data, including PDF, TIFF, electronic data interchange (EDI), spreadsheet templates, or rekeying into online portals—all alternatives to the least-desired means: paper. These efforts have largely been successful, and some service providers report higher use of electronic submission from carriers outside the United States.
Normalizing data is a large—and difficult—part of the freight payment and audit task, but it is essential to get all data into one format and gain visibility. For example, freight bills may arrive in euros, but the shipper wants data reported in U.S. dollars. Some data is more challenging to standardize, such as postal codes, which vary in length and content by country.
Exceptions to the expected carrier data must be addressed manually by the freight payment auditor’s staff, which drives up costs, so there is a strong incentive to standardize the data.
“Without good data, you can’t audit freight bills,” says Layne. “If data formats vary, it is difficult to automate processes, and the work becomes manually intensive, which is not cost-effective.”
Overseas shipments are also more complex when it comes to destinations. In the United States, shipments move from a shipper’s address to a consignee’s address, each with a clear-cut ZIP code, which makes expected rates relatively easy to calculate. International shipments move according to Incoterms—international terms of sale developed by the International Chamber of Commerce to define sellers’ and buyers’ responsibilities.
“The location is determined by where the cost or liability transfer takes place,” says Marlowe.
Destinations are determined by that transfer point, which makes it more complicated to calculate the appropriate charge. The rate determination process is completely different.
The same challenges emerge when evaluating an ocean freight move such as Hong Kong to Atlanta: Did the shipment move via Los Angeles or Savannah? Those two routes are markedly different in transit time and cost.
Each shipper’s contract with a carrier is separately negotiated and unique to those companies, so specifics such as tariff discounts, fees, rates, and bunker must also be accounted for.
Air freight has its own idiosyncrasies. Rates are quoted in pounds, but freight is billed based on the Dimensional Weight Factor—the greater of the volume or the weight.
The novelty of auditing international freight bills that have not previously been subject to such scrutiny means shippers benefit from low-hanging fruit when they begin the process.
“We catch a lot of errors, so the return on investment is larger,” says Miner. “The savings are greater for international transactions—about two times larger than in the United States—because the domestic marketplace is static and mature.”
Industry estimates put the typical domestic savings from auditing freight bills at two to six percent.
Finding Gold in Data
Whether they’re auditing domestic or global freight – or both – many shippers are learning that scrutinizing freight payment data isn’t just good for ensuring accurate payments. The data that freight payment audit generates is often the only place supply chain organizations can gain a single, detailed view of their freight spending, and therefore, complete visibility to transportation operations.
“Companies always need and desire more information,” says Tom Zygmunt, manager of marketing for freight payment and audit provider Cass Information Systems, based in St. Louis, Mo. “They need freight payment and audit on the front end to get back-end freight and expense management.”
A freight payment audit’s output can amount to a freight bill master containing more than 500 data elements. This data, combined with details from a shipper’s general ledger, can offer substantial insights into transportation spend.
Freight payment and audit services can provide supply chain organizations with a high-level view of this data via a dashboard, which can display transportation costs by region, division, fuel, taxes, accessorial charges, currency, or lane type.
Then the detailed data freight payment companies provide for incorporation into the enterprise resource planning or general ledger system can break down those costs per shipment to the stockkeeping unit level—including Customs fees, duties, taxes, fuel, accessorial charges, and shipper allocation codes.
SKU-level data provides multiple benefits, such as helping better allocate true costs to the shipper’s internal divisions responsible for those shipments, supporting total landed cost calculations, and determining if it is profitable to do business in certain lanes with certain customers.
After the savings generated by correcting errors, “even greater savings come from using the information,” says Zygmunt. “Shippers can properly allocate costs to the general ledger, build accurate accruals, and use the information to manage the transportation function, identify anomalies, and keep expenses down.”
Freight bill audit data also supports shippers’ objectives to drive down costs. “Chief financial officers are calling on shippers and supply chain managers to create more value and efficiencies in the organization,” says Friedman. Gaining more granular insight into the cost components of transportation—such as using premium freight when standard services will do, racking up avoidable accessorial costs, and incurring less-than-truckload minimum charges when the freight could have moved via parcel—is helping shippers identify cost-reduction opportunities.
“Companies may never have considered these factors before, but now they are paying more attention to them,” Friedman says.
Another approach some service providers are using to automate freight bill data processing and continuously improve the transportation cycle is taking additional steps to communicate with carriers about exceptions. When a service provider discovers an error in a freight bill, it has three options:
Pay the amount the service provider feels is correct, then note in the remittance advice the reason for the different payment amount.
Pay the amount the service provider feels is correct, then post the reason in an exceptions tool, a Web portal accessible to the carrier and shipper for reference.
Post the exception in the exceptions or collaboration tool, then wait for the carrier to issue a new invoice prior to payment. The service provider staff sometimes reaches out to carriers directly to point out consistent problems.
Once payment has been received for an invoice, the process a carrier must undertake to change the way it is rated is often more cumbersome than it would have been prior to payment. Resolving issues often entails shipper/carrier meetings to review hard-copy invoices and rates being managed in spreadsheets and emails.
As a result, it can take nine to 15 months to resolve payment exceptions, with both the carrier and the shipper staff searching through stacks of paper for answers, says Acuitive’s Marlowe. “If a bill is paid wrong, everybody loses,” he notes.
Carriers appreciate pre-payment audit because it saves them the same post-invoice work that a shipper incurs when there is an error. “We give visibility to users, so it’s faster to correct errors, which often results in faster payment,” Marlowe says.
An invoice based on the wrong detail can look right but still be very wrong. That’s why Acuitive uses a validation process to compare manifest data with invoices, considering factors such as whether the cargo is listed on another invoice; whether the invoice is structurally correct; and if the shipper received the services for which it was charged. Then Acuitive posts those issues to the portal for carriers to resolve and send a corrected invoice prior to payment, whether the invoice reflected under- or overcharges.
Pre-payment audit helps detect and resolve problems early, before a small error on one shipment becomes a repeated error on 500, and the task of resolving the problem grows that much bigger.
Technical Traffic Consultants, a Congers, N.Y.-based freight payment and audit provider, maintains a library of its tariffs and contracts on its Web site so clients can ensure they are validating to the correct agreements.
“The percentage of freight bills that are successfully processed using automation, without need for manual analysis of exceptions, tends to decrease by about 10 percent every time a shipper signs a new carrier contract,” says Marlowe. The success rate typically rises back to about 95 percent as problems are resolved and corrected for the future.
Similarly, when shippers start operating in new global regions, exception rates start out higher, then decrease as issues are resolved.
Exception or collaboration tools also help expedite the process of alerting shippers to problems or special conditions. Data2Logistics, for example, recently upgraded its Online Exceptions Tool by collaborating with clients, who asked for features such as the ability to enter free-form text, and create views based on modes or carriers. Shippers can ask to be alerted when a bill meets certain criteria, such as when parcel bills exceed $5,000, or specific accessorial charges appear.
Tool Sets Get Feature-Rich
Leading freight payment service providers continue to enhance the tools they offer to help shippers make the most of freight payment data, from providing standard and customized reporting tools and raw data feeds to offering transportation management systems, benchmarking services, supply chain optimization, and logistics consulting services.
Technical Traffic established an audit trail process to help carriers track the status of their freight bills. When carriers upload invoices, they automatically receive a receipt acknowledging the submission, so they can be confident it was received.
The service provider also simplified bills containing accessorials. Rather than sending the freight bill via EDI and accessorials via a paper bill, carriers can upload accessorial documentation to Technical Traffic’s Web site, where it automatically matches it to the EDI transaction, and validates the accessorial against the invoice. This provides the shipper an audit trail; the carrier and shipper don’t have to deal with paper recordkeeping; and the accessorials can be paid along with the freight bill.
Freight payment service providers say carriers look on such services favorably. These services initially existed to ferret out errors in freight bills that shippers would otherwise pay. But in an increasingly cost-conscious business environment, pre-audit firms in particular are raising issues early that would otherwise snowball and cost more to investigate and resolve later.
As systems to discover and resolve freight charge disputes grow more sophisticated, they ease manual tasks for carriers, shippers, and freight payment service providers.
Many service providers are enhancing their analytics and business intelligence tools to drive new benefits for shippers, including helping to calculate total landed costs; revealing lost opportunities for transportation cost savings; performing ad hoc queries and drill-down reporting; analyzing lanes; and generating bills of lading.
One benefit that can easily justify the cost of analytical tools is discovering lost opportunities in the data. “If a shipper contracts with 15 carriers, and the data shows a certain location is shipping with a non-compliant carrier or one that offers a higher rate, the shipper can see lost opportunities and determine how much they cost,” says Scott. “The savings that can result from changing the routing more than pays for the reporting and Web tools.”
For example, CT Logistics is preparing to release CT LION (Logistics, Intelligence, Optimization Network), a tool that creates optimized networks to help shippers choose the best routes for their shipments based on rate, service, mode, and other criteria.
nVision Global recently enhanced its iFocus Dashboard, a state-of-the-art analytical tool with mapping, graphing, and predefined pre-performance indicators.
Technical Traffic is developing its capabilities in helping clients calculate total landed cost for international shipments, and has spent the past two years re-engineering its technology platform for such functions. “We’ve developed a tool to help shippers estimate their costs internationally—not just the cost of the container or a particular shipment, but to identify the cost per unit shipped,” says John Mecchella, president of Technical Traffic Consultants. “For international shipments, landed cost is the primary concern.”
One area to consider when choosing providers is the granularity of the data they are capturing for analysis. nVision Global captures more than 120 data elements, and allows its customers the ability to capture an additional 20.
Some freight payment service providers also offer transportation management systems (TMS), leveraging the freight payment data already in their systems to execute least-cost rating and routing capability, optimize shipments, and benchmark shippers’ transportation moves against other shippers to reveal cost-reduction opportunities.
“It helps to have only one integration point,” says CTSI-Global’s Scott. “In a traditional freight payment arrangement, the provider would get the bill of lading file from the shipper or TMS provider to match to the carrier’s freight bill. Because the data is already in the system, we’re able to match it, make sure the information is correct, and provide a single database not just for the freight payment data, but also for the shipment and tracking data. Then we can run the optimization and routing metrics.”
Moving Beyond Audit
Rigorously and carefully scrutinizing freight bill data sets the groundwork for a host of supply chain management functions: you can’t make good decisions without accurate data. Freight audit and payment service providers are capitalizing on the data their processes create to offer a broad range of services beyond freight bill payment&mdsah;and shippers are reaping the benefits.
Freight Bill Audit & Payment Helps BE Aerospace Soar
Like many shippers, BE Aerospace sought a third-party freight payment auditor to ferret out rate errors and file service failure claims, but soon discovered the cascading benefits of gaining granular, accurate data about its transportation spend.
The Wellington, Fla.-based manufacturer of aircraft passenger cabin interior products implemented freight payment and auditing with CTSI-Global at its 30 sites using a phased approach, starting with the United States, then spreading internationally. Among the unexpected benefits of the process was a reduction in the aging days for carrier invoices.
But the richness of the resulting data came as a surprise. “We have one repository from which we can pull data quickly and accurately,” says Steve Francke, corporate transportation manager for BE. That has proven useful in a number of ways:
- Enhancing rate negotiations. “We can identify our annual spend with multiple freight forwarders, then roll the total together to negotiate based on volume,” says Francke.
- Identifying shipping lanes and routes with each freight forwarder, without relying on the forwarder for that information.
- Discovering best routes to support potential expansion into new markets.
Supply chain managers at each site can access CTSI-Global Web tools for queries and analysis of BE’s transportation data. The manufacturer also pulls data into its own business intelligence tool.
“Our company has grown quickly over the past 10 years through acquisition, so we have several sites with different operating systems,” says Francke. “CTSI-Global allows us to normalize data into one reporting system.”
Other companies could benefit from freight audit technology by working to normalize data before beginning implementation.
“It’s tremendously important to have a good, accurate list of accounts, with naming and nomenclature issues worked out,” Francke notes.
The many benefits have Francke eyeing expanding to use CTSI-Global’s transportation management system (TMS) to gain capabilities such as optimizing loads, selecting carriers, tendering shipments, and tracking and tracing freight.
Jaguar Stays Fast and Nimble with Freight Bill Audit
Logistics in the United States is different than in the United Kingdom — and so is freight bill payment and auditing. That’s why Jaguar Land Rover North America LLC decided to shift freight bill auditing for its aftermarket parts operation from a U.K. provider to one with more intimate knowledge of the U.S. transportation market.
“We needed an expert in the United States,” says Christian Sees, Jaguar parts operations analyst at Jaguar Land Rover. The company sought a pre-audit and payment service provider that was “big enough to handle the job, but small enough for us to maintain close contact,” Sees says. “Price and service were the main factors.” The company selected Technical Traffic Consultants, a Congers, N.Y-based provider.
The first priority was recouping excess freight transportation costs with parcel and niche less-than-truckload carriers. Within one year, Jaguar recovered five percent of its freight spend. “We were expecting hard cost benefits, though not as big as they were,” Sees says. “But there were also soft benefits, such as cutting the time we spend managing the audit and payments.”
In addition to paying for itself with the revenue it recovered, outsourcing freight pre-audit and payment has provided Jaguar with visibility into its transportation spend for aftermarket parts, providing insights valuable for decisions such as carrier changes and allocating customers to be serviced by specific warehouses. Its carriers have also benefitted, because they are paid faster, enjoy a more streamlined payment process, and can access a portal to view and resolve disputed charges.
New Global Paradigms
Processing international freight bills can challenge freight payment service providers to conquer a whole new set of laws, languages, currencies, tax and tariff structures, business practices, and measurements. Memphis, Tenn.-based freight payment and audit service provider A3 Freight Payment’s Ross Harris, CEO, and Craig Cameron, vice president of marketing and sales, address the complexities of managing global freight payment.
Q: How are extended supply chains and new sourcing locations impacting the need for international freight payment audit?
Cameron: As supply chains have expanded globally, so has the need for international freight payment. Although still complex, international freight payment has actually become easier for some companies in the past 10 years. Large transportation providers have enhanced their offerings to include comprehensive global services with centralized billing, electronic invoicing capabilities, single-currency billing, and global rates. These enhancements have helped consolidate invoices from many local carriers to a single global carrier.
The largest challenge in a global freight payment process remains support for processing in-country or local transportation moves. In these scenarios, shippers are challenged with justifying the outsourcing cost of processing transactions in low-wage economies.
Q: What steps are required as providers expand into processing transportation payments for moves in new countries?
Harris: Expanding a pre-existing processing system to accommodate international transactions and intra-country moves outside the United States involves a herculean effort. It is far better for a processing system to have been built already anticipating these needs.
With no historical regulatory “overhang” as in the United States, tariff and contract structures can be highly customized based on the customer-supplier relationship.
This often means a radically simpler structure for determining charges — but one that does not fit a traditional U.S. rate engine. Therefore, older freight payment providers often must “hack” their own system to accommodate these charges.
Multiple-currency processing and payment further complicate matters. This is not simply a matter of incorporating new currency codes into a database. Rather, the provider’s treasury system must integrate with local banking systems to provide the most efficient settlement methods.
A system designed with these requirements in mind is far superior to an existing U.S. dollar payment system that must be modified.
Unfortunately, foreign currency settlements are a major stumbling block to the largest providers in freight payment: U.S.-chartered banks.
As regulated financial institutions, these entities must pass through several regulatory hurdles in order to process foreign currencies – if they can at all. Because of regulatory burdens, these providers’ customers may notice long delays in establishing new foreign currencies.
Further, they cannot deal in many controlled currencies, such as Chinese Renminbi.
Q: Why are international freight payment bills more complex?
Harris: For non-U.S. transaction processing, every geography brings its own unique set of challenges for freight invoice processing.
Invoice documents in Europe have the force of law, as they are used as source documents to validate compliance with Value Added Tax (VAT) regimes; therefore, invoices in Europe cannot typically be short paid. Rather, as errors are detected, the provider must seek credit notes to adjust the invoices to maintain VAT compliance.
Further, this legal status complicates adopting electronic invoicing.
In low-wage environments in Asia, the internal cost to process freight payable at a given customer site is extremely low. It is often more expensive to consider an outsourcer. Providers must be able to offer solutions that provide visibility without increasing the cost of ownership to shippers.
Additionally, China has a particular problem with spot quotes or ongoing contract negotiations. In China, a contract is never actually done. So, rates and charges can change with little or no notice.
Currency controls and strict banking practices can make processing payments extremely challenging. This is especially true for processing duties and taxes for certain Latin American countries.
Canada has some of the same issues as Europe, but they are related to the Goods and Services Tax (GST) and Provincial Sales Tax (PST). Specialized recovery firms audit for GST and PST.
Knowing when a given transaction is or is not subject to GST or PST is no small feat and, quite often, out of scope for a general freight payment company.
Parcel Audits Expanding
Parcel carriers have long provided a significant level of detail about shipments, and individual shipment costs tend to be much lower than for other modes. As a result, few shippers saw value in leveraging third-party freight payment service providers to audit those invoices.
“Shippers received a weekly invoice from UPS or FedEx for thousands of dollars, covering thousands of shipments,” says Allan Miner, president, CT Logistics. “Most companies just paid at the invoice level, not having visibility to all of the tracking level details to audit from.”
That changed as the recession drove more shippers to leave no stone unturned in their efforts to drive out costs. More freight payment vendors are now offering services specifically for parcel, seeking errors such as incorrect service levels and misapplied accessorials. Shippers also want to ensure charges are allocated to the proper internal departments.
“Cost savings can be reaped if vendors have the technical capability to review the line-item detail of parcel shipments,” says Steve Layne, chief operating officer, Trendset Information Systems.
In fact, many companies are bringing this function back in-house because pre-audit firms are not taking the time to do this highly detail-intensive process properly, says John Mecchella, president, Technical Traffic Consultants. It’s critical that general ledger numbers are validated before they’re applied to departments within a shipper’s business.
More shippers are now seeking parcel invoice auditing, particularly those with large shipping volumes. Even small savings per shipment add up when multiplied across one million packages.