Company > News

THE HIDDEN COSTS IN FREIGHT BILL PROCESSING

Market Perspectives from Industry Thought Leaders

Why Processing Freight Bills Using Traditional Accounts Payable Methods Costs You Money.

By J. Peter Donlon, Executive Vice President, API Outsourcing, Inc.

It may seem that a bill…is a bill…is a bill. With new regulations such as Sarbanes-Oxley and the renewed focus on internal controls, processes have been strengthened and your A/P department is in good shape. Freight bills are paid on a consistent basis with your other bills, and it seems that there is no reason to evaluate the freight payment process.

The complex nature of freight bills, however, can be a challenge to your accounts payable department and more than your A/P software can handle effectively. The result is that the cost to process a bill ranges from $10.50 – 14.00 per invoice. By outsourcing, processing costs can be reduced by 30%-60%; and the processes utilized are best-in-class, developed through extensive experience.

Additionally, you benefit from technology specifically designed to ensure that you pay only appropriate charges, and you are armed with business intelligence that typically isn’t available through your A/P department.

Limitations with A/P Processing

The Bill as Presented by Carrier

Freight invoices are many times billed in aggregate, even though invoices need to be validated at the shipment level. A single shipment may also include multiple purchase orders. Without the ability to drill down further than at the aggregate level, it is hard to validate and approve the invoice. Also, limitations on drill-down capabilities hinder the means to identify how much is being spent on freight and the ability to accurately allocate these charges to multiple cost centers.

Delays in Receiving Invoices or Support Documents

In a typical accounts payable department, freight bills are processed when they are received. Processing may include manual matching of the freight bill to the bill of ladings and other supporting documentation, or automatic approval with little or no audit capability. Invoices paid late due to missing invoices or documentation can result in late fees from the carrier and may potentially affect future negotiated rates by as much as 3%.

With an outsourced freight payment solution, bill of ladings, and support documents are electronically matched to the associated invoice at the time of receipt. Carriers are automatically notified if invoices or other documents are missing. This pro-active, automated approach prevents payment issues due to missing documentation.

Undetected Errors in Bills Due to Inadequate Audit Capabilities

Freight bills are prone to error. A variety of reasons such as shipment delays, penalties, re-routing, re-classification and accessorial charges can cause the bill to be inaccurate. Any of the reasons listed above may require that the Carrier bill be adjusted. You may think this is an infrequent occurrence, but some companies discover that up to 85% of their shipments are changed.

Due to the fact that there are separate rate contracts with each Carrier, and a company may use a large number of Carriers, most A/P departments aren’t set up with the technology needed to efficiently track and verify these bills. This can be a significant deficiency in the process because rate errors, if not caught, on average can cost a company an additional 5% of the amount billed by Carriers. An outsourced freight payment solution should include a pre-audit component to ensure that Carrier’s bills match pre-determined rates, ensure accessorial charges are valid, and also protect against duplicate payment errors.

Advantages of Outsourcing

Reduced Processing Costs

The average cost to process a freight bill through an A/P department ranges from $10.50 - $14.00 per invoice. Outsourcing this function can reduce costs considerably. By utilizing the deep freight experience, automation and the economies of scale that an outsourcing provider can provide, typically processing costs can be reduced by 30%-60%.

Managing Invoices and Support Documents

Bills of lading. Support documents. Invoices. Statements. Every Carrier shipment contains multiple documents. Managing these documents in an organized fashion can be considerable work if done manually. With an outsourced freight payment solution, documents can be electronically matched, linked, and stored for ease of access for payment processing as well as audit. In addition, outsourced freight payment solutions can convert EDI information to an electronic invoice image for ease in viewing the information.

Comprehensive Management Reporting

In-depth reporting can provide you with business intelligence that is not available through typical A/P processing. By utilizing the information used during the audit process, extensive reporting is available regarding Carrier performance. Trend analysis can help you improve transportation processes and reduce freight costs.

Improved tracking for SOX Compliance

Because the freight payment process is handled electronically, there is an electronic trail associated with every bill and every payment. The automated pre-payment audit ensures invoices are billed correctly and includes documentation on adjustments. With secured, online access, all documents, adjustments and added notes associated with a payment or bill can be viewed instantly.

Conclusion

Processing freight bills using traditional accounts payable methods is not the best approach and is costing you money. Errors can cost upwards of 5% of your shipping expense and an internal solution may be costing you an additional 30%-60% in processing costs. Future rate negotiations can be negatively impacted by up to 3% and additional fees can be incurred if bills are paid late.

With an outsourced solution, not only are there financial gains to be made, but other benefits as well. Some of these benefits include improved reporting, stronger controls and compliance, and improved Carrier relations. From a competitive standpoint, using an outsourced solution will allow you and your team to focus on core strategic business needs, while relying on your outsourcing partner to deliver best-in-class freight payment capabilities.

Back to API News