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."
Auditing Potential Providers
Once you decide to outsource freight bill payment and auditing, consider the following factors before settling on a provider.
- Financial stability. “In most cases, you are entrusting the provider to make payments to your carriers, so its financial stability and security are very important,” says Tom Zygmunt, manager of marketing, Cass Information Systems. This is especially important in today’s economic environment. Ensure the provider you choose has a proven track record and strong financial position.
- Management depth and experience. Does the company’s staff include several experienced managers? If one key person leaves, will others be able to manage appropriately?
- Technology. Technology changes quickly. Is the provider committed to keeping up with it? Can it invest in the technology needed going forward? Does it have the expertise to take advantage of new technology to improve its service?
- Security. Information systems must be adequately protected from viruses and intruders.
- Customer service. Customer service is a key factor because the provider processes bills on your behalf daily. It is basically an extension of your company, so ensure the service provider can offer excellent service and is easy to work with.
- References. Don’t be afraid to ask a provider for a list of references and contact information so you can verify it has satisfied customers who recommend it.
“There are a lot of freight payment providers out there,” says Carman R. Stripling, corporate transportation manager at flooring company Mohawk Industries, Calhoun, Ga. “It’s important to find the one that matches your company’s needs. Some do more thorough audits than others, but you have to think about what benefits you plan to achieve, then match your company’s needs to the provider’s strengths.”
These leading freight bill payment and auditing services companies also provide shippers with valuable business intelligence data.
Cass Information Systems | St. Louis, Mo. | 314-506-5500
Cass Information Systems’ freight payment and auditing solution gives shippers the tools they need for effective transportation expense management. From easing the administrative tasks of invoice processing, to creating cost savings through invoice audits, to delivering actionable business intelligence, Cass delivers the benefits of an automated, best-practice freight bill payment and auditing system.
CT Logistics | Cleveland, Ohio | 216-267-2000
CT Logistics’ proprietary transportation software, FreitRater, provides a comprehensive freight bill audit, payment, and management reporting system designed specifically for freight shippers or consignees. It enables the user to budget for expected shipments, establish the most cost-effective shipping mode, accurately determine cost estimates for specific contracts, and develop shipping scenarios for various transportation options.
CTSI-Global| Memphis, Tenn. | 888-836-5135
CTSI-Global’s complete Software-as-a-Service transportation management system and freight bill payment and auditing services allow shippers to automate manual processes, improve performance levels, and cut transportation costs. The company analyzes each shipper’s unique transportation operations to present new business process optimization initiatives at quarterly business reviews. These efforts help enhance the shipper’s overall efficiency and quality, and generate savings.
Data2Logistics | Ft. Myers, Fla. | 609-683-3917
Data2Logistics’ leading-edge technology has reshaped freight bill payment and auditing services, providing global visibility to actionable information for all transportation modes. Data2Logistics’ Web-based tools provide alerts, diagnosis, analysis, and solutions to help shippers better manage and reduce their supply chain costs. Complemented by a full suite of business intelligence and consulting services, Data2Logistics helps shippers continuously find cost savings and optimization opportunities.
nVision Global| McDonough, Ga. | 770-474-4122
In an international market, every shipper demands a freight bill payment and auditing solution tailored to its individual needs. nVision provides a single-source global platform and database for shippers seeking a one-stop solution. Its proprietary technology is designed to accommodate all aspects of invoice processing, regardless of origin or destination.