Monthly Archives: September 2013

Freight Payment & Audit – Options and Best Practices (Part II)

Here’s a post that originally appeared on the UltraShipTMS blog.

My last post examined the main options for handling freight audit and payment, weighing the pros and cons of each. If you’re a shipper interested in the option of implementing a TMS freight audit and payment module, this follow-up discusses key features you’ll want in a solution.

A TMS Freight Audit Module’s basic process is:

  1. Receive invoices;
  2. Check invoices vs. expected rates, and validate payments;
  3. If invoices are equal (or close) to expectations, pay them;
  4. If invoices are not within expectations, resolve the issue and determine what to do with the invoice;

There are some variations on this process like the frequently discussed “auto-pay”, wherein a TMS determines the expected freight charges and pays carriers without requiring invoices. It’s a nice idea in principle, but it’s still rarely used, for various reasons. Most of those using auto-pay typically implement it only with amenable carriers wherein shippers calculate the costs very accurately, making for slow roll-outs. Like most, you’re likely going to utilize the aforementioned mainstream process.

To get the most out of this process, the freight audit and payment system must receive freight invoices by EDI, or other electronic formats, such as XML. You’ll also want efficient and friendly user screens for freight invoice data entry when hard copies are received. Some systems offer invoice entry screens intended for use by carriers, which are convenient for shippers. But many carriers have their own processes for billing and likely prefer EDI invoicing as opposed to using shippers’ data entry screens.

To check freight invoices vs. expected rates, freight audit modules need a strong rating engine like those included in good TMS solutions. Using a TMS freight audit module (as opposed to a freight audit and payment service) puts you in great shape for auditing once rates are established in the TMS. The system should match the invoice to known shipments in your system, verifying the shipment truly occurred and was properly authorized.  Also, it’s common practice to verify the carrier delivered the shipment and reported delivery to your system via an EDI 214 status message before paying.

Discrepancies and Tolerances

In some cases you’ll receive invoices for shipments not planned in TMS, and you’ll need to deal with those too.  Clearly, your system is going to require sophistication and configurability to handle these scenarios without manual workarounds.

Often, actual shipments differ from those planned. The system should easily distinguish between the two. Causes of discrepancies between planned and actual shipments may include weight differentials, differences in the line items shipped (e.g., the inventory system showed some SKU was available, but the warehouse staff couldn’t find it), different shipment dates (which could affect fuel surcharges), etc.  If you don’t have an accurate picture of what actually shipped (and when) you’re going to have a lot of exceptions when auditing carrier invoices.

The system needs the ability to establish cost tolerances. If within the tolerance limits, the invoice will be paid. I’ve had clients tell me they don’t favor tolerance limits. They want to force the carrier to get it exactly right. I reply, “Some minor discrepancies are completely legitimate, and having a tolerance avoids expending more costly man-hours resolving very minor issues.”

Payment Processing

The system should integrate with the shipper’s ERP payables system to create a payable voucher for carriers. You’ll need some way of ensuring that the carrier list in the freight audit module syncs with the list of vendors in the ERP, so that as new carrier contracts are negotiated, the carrier is known in both systems.  Ideally, carriers get access to payment status over the web, to see when they’ll be paid for any given invoice. This reduces the call volume to your payables group and is a significant labor saver.

Finally, an effective freight audit tool implements a freight audit process focusing on automation, only requiring user intervention for exceptions. An effective freight audit process using a strong TMS freight audit module succeeds at automating a large portion of invoice processing, and keeps manual efforts to a minimum.

SaaS TMS expert, SadowskiMichael Sadowski is Principal Consultant at CamiApp, a firm that provides consulting on logistics and supply-chain IT issues to 3PLs, shippers, and software companies. Previously he was a CIO in the 3PL industry (where he led the creation and implementation of several TMS and freight audit and payment systems), and an executive in a TMS company.


Freight Payment & Audit – Options and Best Practices (from the UltraShipTMS Blog)

Here’s a blog post I wrote that appeared on the UltraShipTMS blog:!

If you could save a conservative 3% on $100 million in freight spend via freight audit and payment automation, your $3 million savings would easily pay for a TMS investment.

What are your options when it comes to freight audit and payment? Here are the main ones:

1. Do It Manually – Handle your freight invoices through your normal AP process, using your ERP system’s payable module. It’s good enough for paying your other bills, so why not freight bills? However, an ERP system won’t provide your AP staff with much insight into the rates carriers should be charging you. Worse, you might be prone to paying duplicate invoices, or even paying fraudulent invoices. Lacking proper tools, even the sharpest AP department will leave a lot of money on the table.

2. Freight Payment Provider – All of your freight invoices are received, checked for correctness, and then paid by an outsourced provider. But understand, this requires an IT system implementation with the service provider in order to work properly. Carefully consider if this service provider will perform over the long run before awarding the contract. The major risk is – should the provider do a poor job managing relations with your key carriers or paying them promptly – you’ll have problems getting carriers to accept your freight, or difficulty negotiating good rates, being perceived as a “difficult customer”.  Some freight audit providers require the shipper to advance the funds to make payments to the carriers, putting shippers at risk for fraud or loss due to provider insolvency. Why give a service provider an interest free loan? Many shippers are rightly uncomfortable with this model for these reasons. An alternative approach is to only advance the provider enough to make specific carrier payments, or better yet, let the provider instruct the shipper when to make each carrier payment. These approaches are improvements, but require more sophisticated systems integration.

3. Use a TMS Freight Audit Module – Wherein shippers use a module within Transportation Management Systems to receive, audit and pay carrier invoices. While the downside is that you need to provide staff to run the audit process, if you implement a good TMS freight audit module, with a lot of automation, the staff required to keep the process running is minimal; likely less than your current levels. Several other benefits include:

a. Shipper keeps control of payments, and has peace-of-mind vs. outsourced models, which are prone to operational issues or even fraud;
b. Implemented well, TMS can be the low cost solution, since you don’t need to pay a freight payment provider, year-after-year;
c. You can provide rapid feedback to carriers on their billing issues, allowing you to coax them into improving their billing quality;
d. Finally, your freight payment history data is your best data source on your true spending on various carriers. Keeping this in-house is valuable since this is a strategic asset you should use for supply-chain analysis, modeling cost savings programs, and carrier negotiations.

Next time we’ll talk about key features to look for in a TMS Freight Audit and Payment module.

SaaS TMS expert, SadowskiMichael Sadowski is Principal Consultant at CamiApp, a firm that provides consulting on logistics and supply-chain IT issues to 3PLs, shippers, and software companies. Previously he was a CIO in the 3PL industry (where he led the creation and implementation of several TMS and freight audit and payment systems), and an executive in a TMS company.

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