In the transportation industry, I’ve seen firsthand how freight bill processing is a missed opportunity for most shippers. In particular, Less-Than-Truckload (LTL) freight bill processing is both elongated and convoluted . Moreover, despite the wealth of shipping data generated by freight bills, many organizations fail to tap into neither their financial, nor operational insights. Instead, most shippers view invoice processing as a complex, labor-intensive administrative task.

This article is for shippers and payors who may not realize that there are many ways to turn their freight bill auditing and payment process into an opportunity versus just another cost center. First, I’ll expose to you just how complex, error-prone this process is. This includes the seven arduous steps that freight bill auditors have to go through to process invoices and pay carriers. Moreover for each step, I’ll share with you tips on how to improve this complex process, making this process more cost-effective. Lastly, I’ll provide you a comprehensive approach to use rich carrier invoice data to help you optimize your shipping operations.

The Major Challenge With Processing Freight Bills: Too Much Data, Few Insights.

 “We are drowning in information but starved for knowledge.”

John Naisbitt

The transportation industry’s freight bill audit and pay process is highly data-intensive, with many companies still relying on paper documents or PDFs, leading to human error, increased costs, and lost opportunities. Even with Intelligent Document Processing (IDP), challenges persist, including messy data, complex rate structures, and the need for shipping experts to audit freight bills. Moreover, valuable insights from freight bills are often trapped in financial systems inaccessible to operations, hindering shipment analytics and auditing. As a result, manual processes and data silos continue to plague the industry, making it difficult to achieve good quality data for shipment analytics and auditing.

For more details on freight bill audit & pay challenges, see my article, 9 Ways Freight Bill Audit & Pay Complicates And Hinders Businesses.

Freight Bill Processing: The Preposterous Challenge And The Insidious Ways It Can Make Your Shipping Operations Go Blind

Three Ways Shippers Process Their Freight Bills: Manually, Buy Software, Outsource.

Before discussing the arduous steps shippers take to process their freight bill, let’s discuss the three different ways freight payors process and pay invoices. See below:

1. In-House Manual Freight Bill Matching. In this case, the shipper’s internal staff manually process invoices, conduct audits, and authorize payments. Also, they often rely on carrier online payment portals or weekly invoices in various digital or paper formats. Any shipping data generated is usually a byproduct of the process, stored on desktops and network drives.
2. Buy or Subscribe to Software Service. In a lot of cases, the software for this freight bill auditing function is part of a Transportation Management System (TMS). This allows procurement analysts to configure carrier rates and process invoices, while retaining shipping data for analytics. Ideally, the resulting analytics is available to both finance and shipping operations.
3. Outsource Freight Bill Audit & Payment. Lastly, many shippers outsource freight bill processing to 3rd party audit firms. In this case, the service provider will normally receive carrier invoices electronically, audit, and process payments. Also, the shipper may get a wide variety of business intelligence (BI) reports, depending on the service provider. However, often the shipper has limited access to raw invoice data for its own analytics.

The Seven Tedious Steps To Process, Audit, And Pay A Carrier’s Invoice.

No matter which of the three types of freight auditing a shipper uses, most go through the same labor-intensive processing steps that are practically the norm for the transportation industry. See below for a summary of steps used for freight bill auditing & payment. Also where feasible, I provide tips to streamline each step and improve data for analytics purposes.

1. Review Carrier’s Invoice: Kicking Off a Complex Audit & Pay Process. 

Normally, this step will occur when the carrier notifies you of a new invoice. The focus of this step is to affirm you have received the invoice. As part of this step, it is critical that the auditor affirms that the invoice has all the carrier information necessary for approving payment, per contract agreement. Depending on the type of processing, this information could be on the carrier’s payment portal, in a data file attached to an e-mail, or a paper invoice.

Tip: Receive data in a machine-readable file (ex. comma delimited file, csv) or use Intelligent Document Processing (IDP) software to convert unstructured files (ex. PDF) into structured data (ex. data fields with labels).

2. Review Carrier’s Invoice Detail: Billing Detail Is Either Lacking Or Too Complex. 

Simple Data Access To Quality Electronic Freight Bills: Here Is How To Make This Less Painful For Shippers

In some cases, shippers will bypass detailed auditing and just pay the invoices directly. This is often due to limited access to detailed invoice data from smaller carriers or simple carrier pricing structures. However, most carriers are now making it easier for payors to access detailed invoices.

At the same time, more and more shippers and their third-party payors do review invoice details. Moreover, they are adopting a more automated approach by downloading electronic detailed data and importing it into their audit systems. This process involves verifying that the sum of the detailed data matches the invoice total during the initial invoice review. Despite its benefits, importing carriers’ electronic invoice data can be both technically and administratively challenging. For a more detailed discussion, see my article, Simple Data Access To Quality Electronic Freight Bills: Here Is How To Make This Less Painful For Shippers.

Tip: Always request the carrier provide their most detailed invoice format. With invoice details that include complete shipment characteristics, there is more information for both auditors and shipment analytics.

3. Manage Contract Rates: Extremely Labor Intensive and Error-Prone Process.

Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?

For shippers and 3rd party processors that use freight bill audit software, they will periodically load carrier contract details into the system. This is typically done when contracts are new, updated, or subject to general rate increases (usually annually). However, managing these contracts can be daunting, especially for large businesses with multiple contracts and frequent renegotiations. While renegotiations can lead to cost savings, they also require analysts to constantly update contract terms in the system. As a result, this can add undue complexity to the auditing process. For a more detailed discussion on this topic, see my article, Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?

Tip: Complex contract terms and constant changes to contracts lead to excessive administrative overhead for both carrier and shipper. For shippers, focus on discounts that actually improve the bottom line.

4. Conduct Audit: Necessary, But Tedious Task Requiring Much Transportation Expertise.

Package Delivery – See How To Stop Surging Costs And Make Your Customers Happy

Now that the contract terms are loaded in the system, the next step is for the audit team to load new invoice Data into the system. Most carriers invoice weekly. Below are the typical audit steps.

Freight Bill Audit Tasks

• Affirm that the transportation services were actually rendered such as a proof-of-delivery.
• Affirm that other value-added services were provided such as liftgate surcharge.
• Verify that the charges match with the contract terms to include any negotiated discounts.

The thoroughness of this audit is dependent on many factors such as the auditor’s expertise, type of audit software, the completeness of the rate load, and company policies. In some cases, this audit process is completely automated using automated business rules. In this case, the auditor may only need to look at charges that have out of tolerance variances. Again, the more complex the carrier’s contract terms are, the more complex the audit. In fact, it is not uncommon for auditors to spend many hours processing freight bills and not identify any direct savings or credit. For more on reducing shipping costs, see my article, Package Delivery – See How To Stop Surging Costs And Make Your Customers Happy.

Tip: Work with both the carrier and the audit team to streamline and automate this process. In particular, identify and eliminate tasks where the administrative costs such as audit labor are more than the audit savings.

5. Allocate Costs For Accounting System: Extremely Complex, But Very Valuable for Management.

Transportation costs can be significant for many shippers. For most businesses, transportation costs are usually 6 to 8 percent of revenue. This can be much higher for ecommerce companies. So for many businesses, the freight bill processor will assign a predetermined general ledger (GL) code to each charge or shipment. Many companies can have complex GL coding schemes for transportation charges. This is to assure that these costs are allocated to the appropriate business unit or profit center. In some cases, businesses have these GL coding rules automated using the freight audit software. Thus, the system will automatically assign a GL code to each charge per the company’s GL-coding rules. However, many businesses still manually GL code freight bills.

Tip: Senior management should clearly define how to allocate transportation expenses to relevant profit centers to incentivize high transportation service levels at the least cost across the organization.

6. Manage Payments and Disputes: Timely Processing Needed to Avoid Late Payment Fees.

After a freight audit is complete, the auditor recommends payment. If the auditing software is integrated with the accounting system, it transmits an “OK-to-pay” transaction. However, this payment process can be complicated by disputes over invoice charges. In these cases, these disputes can take months to resolve, resulting in delayed or short payments. Also in other cases, the audit team is not time sensitive or the payment terms are too short such as seven days to pay. As a result, many shippers incur late payment fees. Worse, some shippers are not aware of these late fees as they are buried in the invoice detail.

Tip: It is critical to identify costly late fees and eliminate their root cause. The typical causes for late fees are either unreasonable contract payment terms (I.e. 7 days) or slow, inefficient audit process.

7. Gather Analytics: Shippers Routinely Lack Access to Detailed Carrier Invoice Data For Insights.

Data Analytics You’ll Need For Unsurpassed Carrier Delivery Results

In this step, the auditor or the freight audit system stores data for business intelligence (BI) and management reporting. However, many shippers and payors face a significant challenge: financial auditors often don’t share the transportation invoice data with their shipping operations. As a result, transportation departments miss out on crucial insights hidden in carrier invoices, such as large package charges, early delivery fees, or recurring address correction charges.

By making invoice data accessible to shipping operations, companies can uncover historical shipment characteristics that can be used to reduce costs and improve on-time performance. This data can be a game-changer for shippers looking to optimize their logistics and transportation operations. For a more detailed discussion, see my article, Data Analytics You’ll Need For Unsurpassed Carrier Delivery Results.

Tip: Ensure that your shipping department has access to detailed carrier invoice data. This information is crucial for identifying and controlling hidden costs that can impact your bottom line.

How to Make Freight Bill Audit Process Better.

Finally, and most importantly, there are ways to streamline your freight bill audit and payment process. Moreover, it is critical for businesses to not lock insightful invoice data into financial system silos. Indeed, this shipping data is invaluable to your shipping operations. Below are eight tips to make your freight bill Audit process a win-win for both your shipping and financial departments.

Tips to Streamline Your Audit Process and Improve Your Shipping Operation

The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations

1. Keep Shipping Contracts Simple To Streamline Freight Bill Audit.
2. Favor Carriers And 3rd Party Partners That Provide Simple, Quality Freight Bill Data.
3. Be A Data Centric Business: Stop Locking Your Data In Systems That Are Or Will Soon Be Obsolete.
4. Leverage Data Analytics Where All Decision-Makers Have Access To All Freight Bill Data.
5. Focus Your Freight Bill Audit On Enabling Operations To Provide Cost-Effective, Competitive Shipping Services.
6. Focus Shipping Operations On Closing the Gap Between What Was Manifested Versus What Was Actually Shipped (And Subsequently Billed).
7. Automate / Optimize: Use KPIs To Continuously Find Ways To Minimize Labor Costs And Human Error.
8. Partner With Carriers And 3PLs To Have A Fault-Free Audit & Pay Cycle.

For more details, see my article, The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations.

References.

For more detailed information on freight bill auditing

• TraxTech’s The Ultimate Guide to Freight Audit
• Shipware’s Freight Payment Process 101
• For tips on reducing package delivery costs, see my article, Package Delivery – See How To Stop Surging Costs And Make Your Customers Happy
• For more information on strategic sourcing, supplier selection, and supplier management, see my article, The Strategic Sourcing Process And Data Analysis: The Best Ways To Secure Unsurpassed Supplier Results

The Strategic Sourcing Process Using Data Analysis In 7 Steps: The Best Way For Unsurpassed Supplier Results

Need help with an innovative solution to make your supply chain systems work together? I’m Randy McClure, and I’ve spent many years solving data interoperability and visibility problems. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. I specialize in proof-of-concept and operational pilot projects for emerging technologies. If you’re ready to modernize your data infrastructure or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.

For more from SC Tech Insights, see the latest articles of shipping and finance.