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Your Essential Guide to Freight Audit and Payment: Streamline Your Supply Chain

If you’re dealing with freight shipments, then you’re also dealing with the freight audit and payment process. As freight shipping gets increasingly complex, auditing does too, making it far more likely to make costly errors, create bottlenecks, and keep your supply chain from achieving maximum efficiency. But done right, according to the latest best practices, the freight audit and payment process can do the opposite: cut costs and improve efficiency. 

This guide to freight audit and payment breaks these processes down to their basics, then builds up the crucial steps that companies can take to check transport invoices and make accurate payments, helping you avoid overpayments and streamline your supply chain.

Key Takeaways

  • Freight auditing and payment streamline supply chain operations by ensuring accurate billing, preventing overpayments, and uncovering cost-saving opportunities, with potential savings of 1-4% on total freight spend.

  • Incorporating technology such as freight audit software and real-time data processing can significantly reduce manual errors, increase efficiency, and provide actionable insights through business intelligence and analytics.

  • Selecting the right freight payment provider is crucial for global operations, with attention to financial stability, experience across transport modes, and integrating with ERP and TMS for seamless multinational transactions.

Demystifying Freight Audit and Payment: The Basics The Freight Auditing Process

What exactly does freight auditing entail? Simply put, it involves:

  • Evaluating and settling freight invoices

  • Creating visibility into logistics spending and activities

  • Verifying additional charges & preventing duplicate payments

  • Ensuring tariff and compliance 

  • Handling exceptions, then resolving disputes

At its core, freight auditing focuses on invoice accuracy, thereby promoting cost savings and sharpening logistical processes. It’s like having a magnifying glass over freight invoices, scrutinizing them for errors such as double billing and inaccurate charges to identify discrepancies.

Here’s the freight auditing play-by-play:

  1. A company receives invoices from its freight partners (carriers, third parties, contractors, shippers, etc). Invoices are uploaded into an online system.

  2. Invoices are grouped and sorted by factors like carrier, date, or company. 

  3. Each invoice is closely scrutinized for accuracy. This means checking for:

  • Accessorial charges

  • Taxes

  • Duplicate; Error/exception detention

  • Freight classification; Compliance with rules and regulations

  • Timeliness

  • Rate accuracy, possible discounts, reductions, or additions

  • Confirming Totals

  1. Exception management and dispute resolution to finalize invoices requiring changes. Repeat auditing to confirm changes are implemented.   

Optimizing Your Freight Costs with Effective Auditing

Freight is a critical cog in the logistics machine, with United States Business Logistics Costs reaching over $2.316 trillion in 2022 and transportation costs at $1.3914 trillion. That’s a lot of spending involving international freight, sensitive information like contracts and bank account numbers, company goods, multiple players, and endless moving parts. 

The sheer volume and complexity of freight bills underline the importance of auditing. Without it, companies risk overpayments due to error-prone manual processes and stalled shipments from discrepancies and disputes. With money and business success on the line, efficient freight auditing processes aren’t optional. 

So, how can freight auditing help optimize costs? 

Auditing reduces costly errors

Generally, 12.5% of invoices between peers across industries require problem-solving (re-work). According to Controlpay,  only 17% of shipping invoices are accurate and on average, the logistics industry has an invoice error rate of 5-8%. The goal of auditing is to reduce the amount of errors and exceptions because the cost consequences add up.

Detecting and resolving errors takes time (and time is money). If it’s being performed in manual, in-house processes, that’s hours of employees’ labor dedicated to fixing technical issues. Meanwhile, every delay in the process threatens carrier contract relationships. 

Duplicate and incorrect invoices can lead to overpayment. An inefficiently audited shipment will let repeat invoices in through the cracks, meaning you’re paying twice what you should be. Incorrect invoices that lead to exceptions create late payment charges, missed early payment discounts, or extra unnecessary fees.

Poor invoice management hurts business credibility and professional relationships. Carriers want to get paid on time and with the least hassle. If you are not using efficient processes, you risk strain on that relationship and threaten good faith trust.

By offering businesses enhanced visibility and control over transportation expenses, freight auditing provides a strategic avenue for optimizing costs and improving carrier relationships. This, in turn, leads to better decision-making in logistics operations. The proof is in the numbers–the National Transportation Institute reports that comprehensive freight bill audits can save shippers between 2-5% of their transportation expenses by identifying areas such as overcharges and unnecessary expenses through freight audits. 

Auditing analytics inform efficiency optimization

Furthermore, integrating data analytics into the freight auditing process can take cost savings to another level and elevate operational efficiencies. Some benefits of integrating data analytics into freight auditing include:

  • Reducing shipping delays

  • Enhancing customer satisfaction

  • Ensuring payment accuracy

  • Uncovering cost-saving opportunities

By analyzing shipment details like weights, distances, and charges, freight audits can help achieve these benefits.

Auditing Streamlines Data for Strategic Decisions

Data is the new oil, and this holds true even in freight auditing. A data warehouse, a centralized system designed to store and analyze large amounts of data, provides a faster query environment with summary tables and facilitates the separation from operational databases.

Strategic transportation spend management: By implementing data warehousing, companies can harness data analytics tools for accurate comparisons, normalization, and insightful reporting. This empowers them to refine shipping practices and make informed decisions.

This warehouse consolidates data from transactional systems and other sources, thereby aiding Transportation Spend Management in:

  • Tracking

  • Analyzing

  • Identifying cost-saving methods

  • Identifying performance issues

Strategic Carrier Decisions: Carrier performance evaluation is another crucial aspect of freight audit services. This structured process involves analyzing historical data, utilizing performance metrics, and grading carriers on key performance indicators (KPIs) post-shipping. Criteria such as timeliness, communication, compliance, and invoice accuracy are used to assess carrier performance, further detailed by KPIs like on-time delivery and cargo inspection for damage.

Regular carrier performance assessments enable shippers to select the best-suited carriers, renegotiate contractual terms, and maintain high-quality service. In addition, freight audit and payment services enhance management visibility into carrier performance and transportation contracts, supporting strategic planning and the execution of business initiatives.

From Audit to Payment: Navigating the Freight Payment Landscape

Auditing is only one part of the process–invoices also need to be paid through the accounts payable process for transportation or freight. Payment is a crucial element for efficient supply chain management, positive carrier relationships, and timely settlements–and in turn satisfied customers and business sustainability. 

Here’s a breakdown of what goes into payment:

  1. Audited and finalized invoices are approved for payment

  2. Company or payment provider pays the invoice with the company and carriers’ agreed method. Methods may include:

  • Paper checks

  • ACH wire transfer

  • Virtual Cards

  • Credit/Debit Cards

  1. Company logs transaction and cost allocation in accounting systems 

  2. Company and carriers track payment status through to successful receipt 

Major considerations in freight payment

Varied & Complex carrier processes: Carriers are private businesses. They all have their own payment rate structures, accessorial fees, modes of communication, and SOPs. 

This makes figuring out payment complex and laborious (and time is money!), not to mention even more error-prone as other factors come into consideration such as parcel reverse logistics, specialized shipments, or multiple carriers. The outcome? Headaches, high labor costs, and costly oversights.

Payment method: Just like every carrier’s invoicing process is unique, so is the type of payment they accept. To cater to diverse invoicing systems, freight payment providers must accept and process various data formats. 

Paper-based transactions are the most traditional, but increasingly the industry norm, expectation, and preference is virtual payment–the more direct the better. In 2022, despite 60% of freight brokers surveyed reporting that they still pay carriers and shippers with paper checks, 68% believe getting rid of checks would help their business operations. The most modern freight audit and payment services support this industry shift to digitalization. 

Contract negotiations/Payment Terms and Conditions: Negotiation and documentation via written contracts are essential to prevent misunderstandings regarding freight charges and payment terms. 

Freight agreements must delineate all freight charges and account for additional fees like inspections, handling charges, and taxes to ensure transparent and accurate billing. 

Getting a strong contract is easier said than done. Freight payment providers handle these negotiations all day every day, however; their expertise and industry knowledge are an immense asset to businesses.

Global expansion = global challenges: Businesses with a global presence, or hoping to expand into one, will face specific challenges including varying invoicing standards, the rarity of payment solutions outside North America, and the need for global support and presence. 

Therefore, when selecting a freight payment partner, companies must look for partners with a presence in their operational regions and be cautious about entrusting large freight spends to smaller, less regulated service providers.

Leveraging Technology for Next-Level Efficiency

In an increasingly digital world, technology has left no stone unturned, and freight auditing is no exception. Freight audit software aids in automating the audit process, effectively reducing manual errors and providing analytics tools for more strategic decision-making. 

Digitization of freight auditing offers several benefits, including:

  • Automated data entry and document management, which significantly reduces manual tasks and recurring issues

  • Expedited audit process

  • Greater supply chain efficiency

Real-Time Data Processing

The market moves fast–data needs to be available as soon as possible to keep up. Real-time data processing is another technology-driven breakthrough in freight auditing. 

It enhances precision in examining and verifying freight invoices, effectively reducing errors in freight billing and payments. Tech-driven freight bill audit software can recover between 1-5% of transportation costs, which, given that shipping is the largest money-spend in logistics, is not insignificant. These cost savings come from a plethora of places, adding up to significant savings.

By automating data collection and analysis, real-time data processing greatly improves time efficiency and removes the manual load from resources, which can then be directed toward strategic tasks.

The integration of IoT devices in logistics provides accurate, real-time data that enhances automated freight payment systems, ensuring payments reflect the actual services delivered. Moreover, utilizing real-time data analytics results in cost savings by identifying overcharges and shipping route optimizations.

Integrating Systems for Seamless Operations

Integrating freight audit and payment systems with ERP and TMS tools is vital for global organizations to efficiently manage complex multi-national and multi-currency transactions. Customizable integrated systems support business compliance and adaptability, crucial for sustaining relationships and handling changes in the logistics sector, such as volatile supply chains.

The automation and streamlining of operations through integrated systems overcome the challenges of manual freight invoice processing, further enabling scalability and improved efficiency.

Ensuring Timely Freight Payments

Timely payments facilitated by freight auditing enhance the shipper-carrier relationship, which can lead to benefits such as prioritization and discounts for the shipper. Late payments can jeopardize the shipper-carrier relationship, potentially resulting in elevated rates and diminished transport capacity as carriers safeguard against financial risk.

Electronic processes in freight audit and payment offer immediate cost savings and encourage more on-time payments to carriers. Prioritizing the conversion of the highest-volume carriers to electronic invoicing yields quick results and a significant return on investment.

The Future of Automation

Integrated digital platforms will shape the future of freight payment by enabling real-time data exchange and optimizing payment processes for shippers and carriers. Blockchain technology has the potential to enhance the security and transparency of freight payment processes, reducing the likelihood of fraud and errors.

Artificial intelligence and machine learning are set to significantly advance payment automation in logistics, utilizing predictive analytics to determine optimal payment timings and amounts.

Outsource Advanced Freight Audit & Payment Solutions for Supply Chains

Usually, businesses interact with third-party Freight audit & payment providers like ZeroDown support carriers via an online portal and support centers to manage and answer inquiries regarding invoice status and payments. Utilizing freight audit and payment services can result in significant time savings, allowing companies to reallocate internal resources to core business activities.

Broker or third-party factoring services offer several benefits, including:

  • Outsourcing laborious tasks, which can improve focus on core business aspects

  • Invoice matching, validation, and error detection followed by automatic exception management and dispute resolution for speedy solutions and satisfied carriers

  • Optimizing transportation network spend, finding efficiencies and cost savings spanning the entirety of the global transportation network

  • Enhancing carrier relations by streamlining payment processes

  • Bank-based, secure settlement, and payment processing options provide strong financial backing and reduce credit risk

  • Better financial management & Implementing cost allocation strategies 

Choosing the Right Provider

The right freight payment provider should fit your needs and enhance your operations. Outsourcing to the right provider can enhance the bottom line, drive growth through optimization, and improve overall operations. 

Providers should offer continuous strategic suggestions for organizational long-term goals, contributing to process optimization.

Providers should also be using the most modern, cutting-edge approaches–particularly advanced technology.

The limiting factors in freight audit and payment–time, complexity, error potential–are the very reason having experts and technology on your side is one of the smartest business choices you can make. 

Considering a provider like ZeroDown is your next step. 

Streamline your supply chain with smart choices

Freight audit and payment services play a critical role in streamlining financial workflows, promoting cost savings, and improving overall logistics operations. With the growing integration of technology, the future holds promising advancements in payment automation, enhancing accuracy, and efficiency. As we move forward into this exciting future, it is clear that embracing these services is no longer an option but a necessity for businesses seeking to gain a competitive edge.

 

 

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Author: Brad McBride

Brad McBride, CEO and Founder of Zero Down Supply Chain Solutions is a dynamic leader with over 30 years of experience in the supply chain sector. His journey began at Consolidated Freightways in 1988, where he mastered freight logistics and pricing. His career led him to Eagle Global Logistics, diving into international freight forwarding and leading high-volume shipping projects.

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