Freight payment: 10 freight invoice facts everyone should know

October 29, 2015 Pieter Kinds

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Today we continue our series regarding freight invoice payment. Despite the fact that freight audit & payment hardly appears as the first point of interest on the supply chain agenda, more and more companies are increasingly focused on freight payment in the light of transportation data and reducing freight spend. In this blog we created an infographic to take a closer look at 10 important freight invoice facts.

10 freight invoice facts that affect your freigth spend

3 freight audit best practices that are worth gold for logistics and finance professionals

For starters, let’s begin with the definition of a freight invoice, sometimes called a freight bill. According to Merriam-Webster: A bill rendered by a carrier to a consignee of freight and containing an identifying description of the freight, the name of the shipper, the point of origin of the shipment, its weight, and the amount of charges.

Logistics managers, employees, and business controllers are among the people inside an organization that are confronted with freight invoices on a very regular basis. And as they know, a freight invoice can be as smooth as silk, or causing multiple headaches a day! Sometimes all payments are running smooth, but other days are more like a thunderstorm of claims, unknown assessorial costs and invoices that for some reason just don’t match. So how do we make every day a sunny day?

Well, following the wise words of 'El Salvador' Johan Cruijff himself, every disadvantage has its advantage. The following three points are dedicated to these wise words and give you an insight in how to turn your invoices into a helping hand, instead of an accounting chaos.

1. Outsourcing Freight Audit & Payment

Freight Audit providers are increasingly helping companies to cut down freight spend. Retailers, E-commcerce companies, manufacturers to healthcare and pharmaceutical managers, for all logistics departments its imperative to trim transportation spend. Freight invoices play an important role. mainly because international complexities in logistics are driving the need to have a freight auditor. This is driven by lack of visibility, the need for control, cost savings and the need to pay carriers on time. Freight costs can make up 10% of an organization’s expenditure, this according to Inbound Logistics.

As a consequence of rising freight costs, many organizations are increasingly pro-active towards their freight invoice management and thereby using the services of freight audit providers. Often, one of the reasons to start with outsoucing freight audit is the fact that for many companies, outsourcing could counts as the most economical way to conduct and process freight invoices. They have also noted that the cost to verify, process and finally pay an internal freight invoice is around $11 and that the cost of outsourcing is around 5 to 10% of the internal cost.

“To begin the auditing process, a third party logistics company receives its clients’ freight bills directly from carriers. When the bills are received, either via electronic data interchange (connect services) or manually, they are entered into the contractor’s system, providing immediate visibility. Once the bills are entered, they are audited for accuracy. Auditors verify the bills’ validity, mileage, duplicate payments, accessorial charges, and use of correct tariffs. After auditing, the charges are coded and reconciled, and the bills are paid.”

Outsourced Freight Audit & Payment process

A freight payment service usually consists of one or more levels of combined services. They may include freight auditing services, information reporting for logistics and freight data analysis, work with a combination of both Electronic Data Interchange or Connect Services, and paper freight bills. Freight Audit Providers often delivers additional tools as well, for example for shipment booking, freight tenders, transportation settlement and auto-invoicing features.

Freight Audit & Payment: The added value of outsourcing

• Reduction of freight cost by 3-5%
• Reduction of time spend on rate updates, exception handling
• KPI driven process with full transparency
• Reduction of invoice quantity
• Rationalization of the carrier base
• On-time payment for carriers
• Automated cost allocation
• Consolidated reporting
• Certified services

2.Freight Invoice Consolidation

No matter what shipping profile or type, freight invoice consolidation is essential the workflow inside your company. Consolidating your freight invoices into one freight invoice is efficiently the answer to all the different (paper) invoices your accounting team receives on a weekly basis. Read more about freight invoice consolidation and how logistics and finance can save time on invoice handling.

3. Freight Audit & Payment data golden ticket to freight spend analysis

Extracting data at the most granular level from freight invoices and supporting documents, shipment files and other records creates a powerful source of visibility into a company’s freight spend. For transportation and logistics managers, this data becomes the basis of informed decision making, targeted cost control measures, and process improvement initiatives.

Freight Audit: Nowadays versus traditional process

Traditionally

- Freight invoice processing (first invoice than audit)
- Recovery of OverBilling
- Cost Allocation & Coding

Nowadays – modern freight audit solutions

- Elimination of wrong billing
- Cost Allocation & Coding
- Putting Shipper in control of administrative processes
- Creating unified and efficient processes
- Visibility (costs, shipments, contracts and the process)
- Centralization and standardization of data
- Reduction of paper
- One data source for different departments (Sourcing, Finance, Operations)

Common business practice: Disconnection between Shipment Details and Actual Invoiced Amounts as they are not managed through the same platform. A Freight Audit provider does make that connection. This leads to advanced analysis capabilities.

The following data can be extracted from your freight invoices, enhancing you to better control tenders, benchmark carriers, cost allocation control, accruals and understanding your cost to serve. it help to simplify your logistics set-up as a whole.

Common reports used from freight audit & payment data

• Geographical activity
• Carrier activity
• Cost-to-Serve
• Order behavior
• Truck utilization
• CO2 Analyzer
• Benchmarking between BU’s
• Average drop-size and costs p/drop
• Extra cost reporting (waiting charges, etc.)
• Tradelane analysis for network optimization
• KPI reporting

Sources:

- American Shipper Freight Payment Benchmark study 2015 – The Cost of Ignorance
- E-billing market overview 2015
- Inbound Logistics - Freight payment services boosting invoice
- Inbound Logistics - Freight payment and auditing services: cash is king
- ControlPay own study in 2013*

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