Dealing with freight bills is a monumental headache for both the transportation industry and for businesses in general. In fact, the procurement field might only have telecom billing to rival it in complexity. This issue stems from many factors, some specific to the industry and others rooted in tradition. To an outsider, the freight bill auditing and payment process can seem utterly absurd. It begs the question: why so complicated, and why do you need transportation experts just to pay a freight bill?
Even for those in the transportation business, there’s another challenge beyond complexity. This is extracting crucial insights from freight bill data is daunting for shipping managers. More often than not, valuable shipping data lies hidden within financial systems or, worse still, on paper documents or Excel spreadsheets. This article aims to highlight the issues with freight bill and payment processing. Moreover, it is my hope that this will spark more discussions on how to streamline this disjointed process. Hence, find effective ways for shipping managers to access insightful invoice data.
9 Ways Freight Bill Audit & Pay Complicates And Hinders Businesses
Throughout my career, I’ve seen many experienced transportation experts waste their time auditing freight bills with little to show for it. Their efforts would be better spent optimizing shipping operations in terms of cost and service. In the remainder of this article, I’ll describe the nine ways that freight bill auditing and payment can complicate and hinder both shipping operations and financial departments.
1. Disjointed And Incomplete Freight Bill Data – Both Billing Data And Shipment Status.
Generally, data in the freight bill industry is disjointed and incomplete. This modus operandi leads to billing challenges and limited visibility to service performance. For example, if a shipper does not receive a final delivery status for a shipment, the shipper may be charged for a service that was not provided. Similarly, if billing data is incomplete or inaccurate, it can result in incorrect charges that are difficult to dispute.
2. Manual Freight Bill Processes That Raise Costs, Reduces Efficiencies, And Limits Visibility.
Particularly for non-parcel shipping, there are too many manual processes. For instance, when paper-based documents are used instead of electronic ones, it will take longer to process shipments and audit invoices. This can lead to a labor-intensive process and more charge disputes. Additionally, manual processes can make it difficult to track and confirm that shipments were delivered on-time or delivered at all.
3. Complex Contract Negotiations And Rate Structures.
The transportation industry has extremely complex rate contracts. This modus operandi results in many shippers not really understanding what they are signing nor the specific costs that they will incur. Moreover, this makes it very challenging for the shipper to compare prices between carriers. Below are some examples of the complexity of contracts:
- Complex Pricing Models. Just think of all the dynamics that can occur when a contract has tiered discounts, peak charges, minimums, delivery area charges, and hundredweight pricing. Then there are the variable fuel surcharges, pickup charges, residential charges, and re-weight fees. This is then followed by dimensional weight pricing, return to shipper charges, zone pricing, large package charges, and so on.
- Challenging Comparing Prices Between Carriers. Carriers may use different pricing models or surcharges that are not easily comparable between providers. For example, one carrier may have a separate residential or peak charge. Then, the other carrier just has a single freight charge for a particular type of shipment. This can make it challenging for shippers to determine which carrier offers the best value for their needs.
4. Too Much Freight Bill Data That Obscures Billing Errors, Non-Value Charges, And Service Deficiencies.
If shippers are able to successfully import their shipment data into their systems, then the challenge becomes what to do with it. There are too many data formats and the too much data. For example, one $5 shipment can have 500+ data elements.
As a result of all this data, shippers become numb to the data instead of getting insights. This leads to missed billing errors, non-value charges, and service deficiencies. For instance, carriers may charge for services that were not provided. Or carriers add new non-value charges that are buried in the data. Additionally, with so much data available, it can be challenging for shippers to identify these issues without adding more dedicated resources.
5. Limited Data Visibility Between Operations And Financial Systems.
Internal data silos prevent the appropriate decision-makers to evaluate carrier charges accurately. Thus, stakeholders cannot make informed decisions about their operations. For example, if financial systems do not have access to recent shipment activity data, it can be challenging to forecast and manage cash flow effectively. On the other hand, many times transportation operations do not have visibility to detailed shipping charges. This is a challenge. For example, without detail charge data operations have no effective way to know about excessive charges. Nor, can they evaluate ways to reduce charges and still maintain service levels.
6. Limited And Complex Data Integration Between Shipper, 3PL, And Carrier Systems.
Setting up external data interfaces is a technical nightmare that leads to poor shipment visibility, delays in processing invoices, and inaccurate billing. For example, if a 3PL does not have access to recent shipment delivery status from a carrier, it is challenging for them to provide a complete freight audit in a timely manner. Additionally, integrating invoice data and shipment status between external systems can be very challenging in terms of time and labor costs. Worse, if there is no data integration, analysts end up using proprietary 3rd party web portals and they resort to Excel workbooks to capture shipment data. This results in limited or no shipment visibility to key stakeholders and decision-makers.
7. Invoice Adjustments And Disputes Are Labor-Intensive With Low Financial Yield.
With freight bill audits, it is difficult for companies to resolve issues quickly and efficiently. For example, if a shipper disputes a charge with a carrier, it can take weeks or even months to resolve the issue. This can result in delayed payments and strained relationships between shippers and carriers. Additionally, there are significant labor costs. For instance, many times it takes an experienced transportation expert to catch errors.
8. Hard To Onboard New Carriers Due To Shipper Requirements: Contract Negotiation, Audit, Finance.
It is challenging for shippers to add carriers and for transportation carriers to enter the market. For example, many shippers requires extensive auditing or financial documentation as well as data integration before working with a new carrier. Thus, it can be difficult for smaller carriers to meet these requirements. For instance, I have seen cases where Fortune 500 shipping operations could not add a new carrier because finance was not ready or able to accept the carrier’s invoice data format.
9. Dysfunctional And Legacy Systems Constrain Operational Innovation And Flexibility.
I would suspect that most large companies are constrained by dysfunctional and legacy systems that directly affect their transportation operation. For instance, take a shipper or 3PL that is using outdated software. They are hamstrung to integrate with more modern logistics platforms and API services. Thus, it is challenging for them to compete against more innovative competitors.
For more detailed information on freight bill auditing, see TraxTech’s The Ultimate Guide to Freight Audit and Shipware’s Freight Payment Process 101. Also, 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. Lastly, see link below for 8 beneficial tips to make your freight bill audit process a win-win for both your shipping and financial departments!
Freight bill audit processing can be a complex and troublesome ordeal for many businesses. With issues like incomplete information, data overload, inefficient systems, and intricate rate contracts, it’s no wonder the process can be daunting. To make matters worse, freight bill processing often places heavy demands on shipping operations. This not only hampers innovation but also restricts operational flexibility and hinders the ability to incorporate new carriers into the mix.
And let’s not forget about the insightful invoice data locked away in financial system data silos. This leaves many shipping operations unable to access this valuable shipping data resource. So, how can we tackle these challenges? Click here for my 8 beneficial tips to make your freight bill audit process a win-win for both your shipping and financial departments!
Greetings! As an independent supply chain tech expert with 30+ years of hands-on experience, I take great pleasure in providing actionable insights to logistics leaders. My background includes implementing 100s of innovative solutions using emerging technologies and a data-centric development approach. I have also provided business intelligence (BI) solutions for 1,000s of shippers. For more about me, click here.