Opening a Dialogue on Freight Payment
Q: A recent report revealed that only 18 percent of shippers discuss best practices in freight payment processing with outside organizations. Were you surprised by that number?
A: As a company that works hard to help our clients think strategically—and views payments as a strategic function of any company—we’d love to hear that shippers are making freight payment processing a primary topic of discussion internally and among peers. I’m not surprised to hear the statistic, though, and I think the reason for the silence is that shippers just don’t know what questions to ask.
Q: What questions should they be asking?
A: The most important question is about how freight payment organizations are handling your freight funds. Many vendors use a float model, which means they take in shippers’ money, co-mingle it with other funds for interest and investments, hold funds for a few days, and then they pay carriers. The problem can arise during that middle step when freight funds could be used for risky investments or outright fraud. As we saw back in 2013 with a few providers that went bankrupt, if the money disappears before payments are made to carriers, shippers are out money, yet their carriers still expect to get paid.
Q: If float has intrinsic risks, what’s the alternative?
A: The alternative is a trade finance model, which is what U.S. Bank Freight Payment uses. Because we’re a bank, we’re held to higher standards and our freight payment process never holds freight funds to earn money from "float." With a trade finance model, a payment-processing organization ensures that carriers get paid. In fact, we actually pay carriers before taking shippers’ money, so there’s no risk of your money disappearing before an invoice is paid. It’s important to ask how your funds are being handled and measure the time between the payment to your provider and the payment to your carrier. As a customer, you should have ongoing visibility, so you can be confident your funds are being managed in a way that ensures they’re safe throughout the process.
Q: What additional questions should shippers be asking?
A: Shippers should also ask about audit and automation. Is your provider delivering a 100-percent audit on every invoice? Are duplicate invoices from carriers counted as "savings"? Take a realistic look at how your provider audits your invoices and manages your carrier contracts to make sure you are not leaving potential audit savings on the table. On average, U.S. Bank Freight Payment customers save 2-4 percent on monthly transportation costs. This is not including so-called "savings" from duplicate invoices.