Freight Payment Systems: From Dollars to Data
For freight payment and audit services, rooms full of rate clerks poring over paper freight bills are a thing of the past. Today, these firms provide business intelligence data that delivers even more value.
"The freight bill payment industry has evolved from a settlement service to an information service," says Harold Friedman, senior vice president, global corporate development for freight bill audit services provider Data2Logistics, Ft. Myers, Fla. Today’s shippers have the ability to access information captured by their freight bill payment service providers to make more informed decisions about carrier selection, service utilization, and cost allocation.
Technology has revolutionized freight bill payment, audit, and reporting services, especially in providing data visibility—the transactions and detail—through the Internet, says Jan Laufer, director of freight payment services at Sunset Financial, a division of St. Louis, Mo.-based transportation services company Sunset Tranportation Inc.
For shippers, freight bill payment is rules-based and process-driven. Freight bills are not typical accounts- payable transactions, explains Tom Zygmunt, manager of marketing for CASS Information Systems, a provider of transportation, utility, and telecom expense management and related business intelligence services headquartered in St. Louis. The skills and knowledge involved in maintaining rate structures and defining rules governing accessorial charges have been trimmed away through downsizing at many companies.
Today’s Web-based systems are able to map and graph pre-defined performance indicators, not just provide cost and freight bill status information.
Keith Snavely, vice president of sales for Atlanta-based global freight audit, payment, and logistics management software and service provider nVision Global Technology Solutions Inc., is reluctant to overwork the term "dashboard" but that’s what shippers see, he says.
In the early days of freight payment services, audit firms were paid on a contingency basis from the funds they recovered through billing errors, overpayments, and duplicate payments. But today, freight bill payment and audit services do more than save shippers money; they provide valuable data.
"Access to shipment data explodes a shipper’s reporting capabilities," says John Mecchella, president and owner of Technical Traffic Consultants, a Congers, N.Y., firm that was founded in 1974 and specializes in customized applications for the pre-audit and payment of freight bills.
Maturing and expanding businesses need to get a handle on costs—especially because many of those costs have shifted outside North America, creating international demand for freight audit and payment services, notes Allan Miner, president of CT Logistics, a third-party provider of freight payment and freight bill audit services in Cleveland, Ohio.
Ken Hazen, president and CEO of CTSI, a Memphis, Tenn.-based freight audit and payment firm with a 50-year history, says he may have resisted going global 15 years ago, but today it’s a necessity. "There are plenty of freight audit and payment firms around," he says, "but some of the larger firms function more like consumer products companies, where you’re only as good as your latest product development." Among CTSI’s latest product developments is a Web site that operates in 10 languages and 34 currencies.
Logistics groups don’t have carte blanche to add to their staff, Hazen says. With complexity and scope increasing, resources have remained tight. And, while 60 percent or more of CTSI’s core services may still be conventional freight bill payment, the transportation management side of the business continues to grow.
Freight audit and payment services can save most shippers between four and eight percent, according to transportation management solutions company Capital Transportation Logistics (CTL), Nashua, N.H. But technology tools can also add value. For example, CTL’s transportation management software, TR+, supports carrier selection and monitors transit times and pricing, while its CapitalWorks system provides an online tool to review shipping history.
Freight bill payment is a fairly straightforward process, according to Trendset Inc., an advanced freight payment solutions company located in Greenville, S.C. Its process flowchart moves from the original bill of lading to the freight bill, and into the audit stage. The company checks bills for compliance against a database of negotiated carrier rates and terms, and removes those that are incorrect.
From BOL to Bill of Intelligence
Data capture is a key to unlocking more sophisticated capabilities and higher payoff from transportation management systems. The bill of lading (BOL) feeds the system data about shipment content, origin, destination, and other details. Early efforts to automate data collection from the bill of lading centered on electronic data interchange (EDI). "The EDI process can be complex for some carriers," says Laufer.
Benchmarks developed by the American National Standards Institute (ANSI) govern transaction sets. Most carriers support EDI transaction sets, but for those who have not reached that level, Sunset works with a third-party service that helps carriers achieve the ANSI standard.
For smaller carriers, data collection has often been a resource issue. "While some tools can move data from spreadsheets into a database, new Web-based tools make it possible to enter information into an online form and let the system behind it take care of the standardization," says Zygmunt.
Carriers can provide freight bills via e-mail, PDF, or online data entry tool, says Snavely. When carriers log on, they see a form that can be customized to resemble their familiar documents. The form collects standard data elements and displays mandatory fields.
Both carrier and shipper visibility can be customized and controlled. The secure Web-based reporting systems are partitioned so that access is authorized for the exact data needs of a user’s job function, explains Laufer. Carriers can access Sunset’s PayLOGIK system and see their shipments and bills. Shipper facilities can see only their freight, while the logistics function can see volume detail to help with traffic lane analysis.
This is where the system starts to bring power to bear, and the database that has developed from the bills of lading and freight bills offers true business intelligence.
One of the first benefits is carrier performance measures. Contract terms are part of the rate database, and "carrier invoices are electronically audited for accuracy," says Laufer.
The obvious top measure is comparing the negotiated rate to the freight charges. But other factors, such as unloading fees that were not supposed to be charged, show up in the audit.
Another important factor the system can monitor for the shipper is the effective date for contracts. Shippers can be alerted when contracts are nearing the end of their term, but carriers can also be monitored to ensure they are using the most recent contract terms.
The transportation management systems that serve as adjuncts to the freight payment systems can provide critical strategic data on traffic lanes, volumes, and flows. This is important not only for monitoring rates against volume discount thresholds, but for providing shippers with a clear view of their distribution network in a real-world context.
Small parcel shipments have become an important part of transportation management as shipment sizes have decreased. Accordingly, CT Logistics has included parcel shipments in upgrades to its FreitRater system. "It’s possible to audit parcel rates down to the penny," says Miner. "It adds up to a lot of money."
Finance had played a minimal role in transportation management in the past, says Snavely. "Transportation spend was just a speck," he says. "Now it is being examined closely. When top-line revenues are slim or dropping, freight payment services can help find savings of an average of four percent of sales, which go right to the bottom line."
Allocating Real Costs
While the logistics department receives data on traffic lane patterns to analyze, accounting gets a more accurate picture of accruals, says Zygmunt. The database can help assign costs down to the stockkeeping unit (SKU) level.
Given shipping data such as cost of outbound freight and invoice value, "we can determine freight as a percent of sales by customer," explains Mecchella. "If we have the SKUs, we can calculate an allocation of freight down to the SKU level or to the product family group. If we know what was shipped, we can produce highly accurate and verifiable freight accruals on a monthly basis."
The ability to match costs to what has been shipped and paid is required in today’s Sarbanes-Oxley world, says Mecchella, referring to the legislation that governs corporate finance record-keeping.
For shippers, transportation is one of their company’s top three costs, and the ability to manage that spend is powerful. The transportation management database is the key, and it does much more than measure the costs billed against the contracted rate. "It also helps shippers manage their network and expenses," Laufer notes.
Shippers can ask if their network is working the way it is supposed to and use compliance with their routing guide as one measure, says Zygmunt. They also pick up billing errors, such as paying for insurance when it was included in the contract. All of this saves the shipper from overpaying, then filing a claim.
Carriers also derive value from the audit process’ immediate feedback. For instance, Sunset Transportation provides immediate feedback to carriers on audit exceptions. This avoids the time-consuming and costly process of the carrier issuing a balance-due notice and the shipper having to research the issue.
Whether it’s with contract terms, routing guides, accounting principles, or Sarbanes-Oxley regulations, compliance is important and the freight bill audit and payment cycle can help companies manage this complexity on the domestic side.
One of the latest and most exciting developments for freight audit and payment firms is the expansion of U.S.-style audit and payment capabilities outside North America. Historically, other countries have been far less formal than the United States in their approach to transportation costs.
The United States may have benefitted from its legacy of economic regulation in transportation. Prior to the 1980s, motor carriers filed excruciatingly detailed tariffs with the Interstate Commerce Commission. By law, a carrier could not haul a load for which it did not have a tariff on file.
Not only did this massive volume of detail lead to errors, new tariffs were issued daily, and the speed of posting often led to more billing errors. Regulations set a narrow window for rate disputes to be filed and dealt with. Freight bill audits weren’t an option for many companies.
When economic regulation ended and formal tariff filing was eliminated, firms doing freight bill audit and payment needed to find new ways to grow. Fortunately, technology was expanding its capabilities exponentially as prices were falling. Groups such as the Transportation Data Coordinating Committee had made inroads in data set standardization. The stage was set for the group that managed your freight bills to also compile an accurate picture of your logistics network and volumes.
The same was not necessarily true outside the United States. Founded in 1923, CT Logistics was a freight payment firm rooted in formal systems. Its ability to survive deregulation depended on how it adapted to changing customer demands.
As more sourcing moved offshore, and global markets began to develop not only to and from the United States, but also in lanes that never touched U.S. soil, CT Logistics found itself confronting practices that provided little detail or visibility on freight costs. Not only did it have to deal with language and currency differences, nomenclature and terms were not uniform.
Today’s freight audit and payment services are a hybrid product. After rewriting its systems for Y2K compliance, CTSI revised them to include transportation management systems. "We continued working with customers to optimize our tools as shippers were redefining how they moved their goods," says Hazen.
That now includes interfacing with enterprise resource planning systems. CTSI pulls out data, massages it, and reports back, benchmarking rates and lanes against the 12 million rates in its database.
The United States is ahead on technology, Hazen notes. Global carriers are less sophisticated when it comes to payment, often billing the same shipment multiple times. U.S. firms are applying their formalized approach and systems to international freight and making headway in providing better visibility.
Shippers are looking for a single source to audit and pay freight bills on a global scale, says Friedman. They need information from all modes and all regions.
"Whether it’s for a carrier report card, volumes by service type and zone, or cost per mile, shippers want access to the data they need to make more informed decisions, ship smarter, and save," says Friedman.
The polyglot database-centered transportation management firm that has evolved today to provide rich data and actionable business intelligence, in addition to cost savings, is a distant relative to the room full of rate clerks poring over binders stuffed with paper tariffs to find billing errors. "It’s not about the money, it’s about the data," says one freight payment executive.
It’s always about the money, but perhaps there is more to be gained from mining the data and improving network performance and efficiency. And in a future where companies will be under new pressures to improve their environmental impact, part of what is likely to be measured will be supply chain efficiency.
The proof again will originate with the humble freight bill, and shippers with access to data will be the winners.
Following the Freight Payment Process
At its most basic, the freight payment process involves matching bills of lading to freight bills, checking for rate and contract compliance, then processing the approved freight bills for payment. Incorrect freight bills are set aside for review. Most companies are also able to use the data collected through this process to compile reports on their current freight situation. Shippers gain valuable insight from these reports, which helps them forecast freight costs and demands, research trends, review current freight obligations, put new freight contracts in place, and negotiate with carriers.
Source: Trendset Inc.
From Audit to Action
Reconciling accounts of any kind is always a test of due diligence. When it comes to managing freight bills for thousands of shipments at different weights and rates with myriad carriers, the audit carries even greater consideration—pennies add up and pools of trickling expense often point to operational problems elsewhere in the supply chain.
As an outsourcing function, freight bill audit has evolved with technology. The payment cycle has become seamless, faster, and more accurate, and it yields a wealth of data that shippers use to eliminate overcharges and duplicate payments, build stronger partnerships with carriers, and create benchmarks for planning and budgeting.
Shippers can also reverse-engineer this data flow to address inefficiencies that are creating additional costs upstream in the supply chain. For example, a discrepancy in freight charges among certain carriers may be a sign that vendors are not in compliance with inbound routing guides. Such a burning platform could trigger a realignment in how consignees manage inbound logistics processes from their suppliers through the warehouse. Essentially, silo optimization catalyzes strategic business process improvement.
Moreover, the facility and speed with which information can be shared via Web-based technologies allows businesses to convey molecular-level freight spend data among corporate departments and within the extended supply chain. From a single source of information, multiple parties can leverage this knowledge to execute change at the local level.
Shippers and service providers are now taking this evolution one stage further by enriching the value of traditional freight bill audit functionality and bundling it with transportation management services—uncovering inefficiencies and eliminating costs beyond the ledger.
The maturation of the freight bill audit payment industry offers a good example of how customer demand is shifting the focus from simple technology application to service deployment.
Memphis-based CTSI began as a “meat and potatoes” freight bill audit company, providing software to help customers manually manage freight spend reconciliation. In time, its technology progressed toward full automation of these processes. The latest iteration in CTSI’s product portfolio is the additional coupling of transportation management capabilities.
“The two functions complement each other. It’s what makes us a service provider,” says Brian Scott, senior vice president of global sales, CTSI.
The 3PL’s freight audit payment solution provides modular functions that include contract management, data capture, audit and analysis, cost allocation, exception management, and payment processing. Shippers can use these tools to populate vital shipment data, allocate charges accordingly, then cleanse and manipulate this information to be re-tasked elsewhere in the enterprise.
CTSI’s Software-as-a-Service TMS deployment presents a pick-and-choose suite of 12 different modules that allow customers to manage all aspects of their inbound and outbound transportation network.
By outsourcing and pairing freight bill audit and transportation management, shippers can build value around a commodity function, suggests Scott. Beyond operational synergies and efficiencies, the freight audit creates the demand for the TMS by exposing problems that the latter can address.
The modularity of its transportation management application allowed CTSI to expand its functionality and coverage globally. It also gives the 3PL greater leverage and creativity in how it sells the bundled solution.
“We can charge for the TMS and offer the freight audit payment software for free,” says Scott. “Then customers pay us with the savings they accrue.”
As shippers continue to wrestle with the challenges of growing their business out of a recession; integrating new customers, service providers, and vendors into their networks; and reducing supply chain touches and costs, the importance of transportation optimization only grows.
Following the freight audit trail provides insight into where processes and communication are lacking, and where costs are leaking. Having the transportation management tools in place to plug these stopgaps brings the freight bill payment cycle full circle.
Freight Payment/Audit Solutions
Interested in finding out more about how a freight payment/audit firm can help your company boost visibility and cut costs? Contact these leading players for more information.
Capital Transportation Logistics
Cass Information Systems
St. Louis, MO
Ft. Myers, FL
St. Louis, MO
Erin Verranault, vice president of operations for Capital Transportation Logistics (CTL), Nashua, N.H., discusses the value companies of all sizes can derive from using freight payment and audit services.
What are some of the technology innovations in transportation management and auditing services?
Today’s shippers want their 3PL to provide a seamless system that integrates completely with their own organization’s technology. That means integrating with our clients’ systems from creating an order, to developing and imaging a BOL, to allocation and freight payment of the same bill.
How will these developments benefit transportation services, shippers/consignes, and 3PLs?
Visibility and control are just two of the benefits of automating the processes. As a 3PL, CTL wants to have shipment detail and access to carrier selection processes well before the freight is delivered to the consignee. This allows us to have real-time knowledge of what is going on, both at the client level and the carrier level.
Shippers can have access to costs and allocations before the freight even leaves their dock, and carriers can plan their loads and schedules for pickups and cut-off times, too. And, as a 3PL, we can have access to all of that information to act as an extension of our customers’ logistics teams.
How do freight payment/audit firms provide value to their customers?
An audit and payment firm first brings value in identifying billing mistakes by carriers and correcting those. More importantly, however, an audit and payment firm provides real-time shipping and accounting data that is captured in one system and can be accessed by the client to make decisions that will impact their bottom line.
In addition to providing that data, CTL creates reports and analysis to help shippers make decisions about where to locate new warehouses, and determine how a new facility would affect its freight spend and carrier base.
How can smaller companies take advantage of freight payment/audit?
Freight payment and audit services bring value to small companies by giving them access to information that often eluded them in the past. CTL provides a database of information on their shipping patterns, costs, and lost savings, plus reports on how to help manage their transportation moving forward.
A freight payment and audit service such as CTL also takes away the time-consuming process of receiving bills, matching them to orders, comparing costs, and making payments to individual carriers. That process alone can tie up a number of key employees that a small organization cannot afford to have focused on the wrong jobs. For minimal cost, a small organization can add a large staff of seasoned transportation management professionals to its logistics team.
In the evolving freight audit and payment industry, Trendset Inc. continues to reinvent itself as an industry leader by using innovation as a platform for customer-specific best practices. Its systems were developed to be custom fitted for shippers’ needs, resulting in reporting tools that can help make informed business decisions.
Trendset began as a post-audit and payment company, but quickly evolved into a technologically advanced pre-audit and payment firm. It serves hundreds of shipper clients, processing and paying nearly $7 billion in transportation invoices annually.
Through a recent partnership with MercuryGate, Trendset has begun to offer a Transportation Management System, which complements its existing product mix. Clients now have direct control over their shipments from beginning to end and can monitor loads in transit.
Trendset also complies with the Office of Foreign Asset Control (OFAC) requirements, assuring shippers that all payments initiated by Trendset meet and exceed regulatory requirements as imposed by the Federal Government. As it extends its reach into the international freight payment market, Trendset found complying with the OFAC gave its clients the upper hand when trying to avoid doing business with fraudulent carriers, resulting in more time and money saved.
Although conversation concerning the Sarbanes Oxley Act’s requirements and Statement on Auditing Standards No. 70 (SAS-70) compliance has subsided, Trendset believes this is a pillar of its performance and cost-saving initiatives. In fall 2010, Trendset plans to begin an audit of its Internal Control Systems, representing a fourth consecutive year of Sarbanes Oxley SAS-70 Type II audits.
Trendset has always understood that being a freight audit and payment company is a position of trust. Year after year, Trendset registers near perfect scores from the independent teams performing the audits on its advanced freight payment systems — and it suspects 2010 will be no different.