Dealing with freight audit and payment in the transportation industry can be a frustratingly messy and disorganized ordeal. But why is this so? Why can’t we streamline it like the typical procure-to-pay (P2P) process used for other business-to-business (B2B) products and services?

In this article, I’ll look at the key differences between a typical freight bill audit & pay cycle and a normal P2P process for non-transportation products and services. Further I’ll clarify why transportation procurement is so complicated and why streamlining this process is challenging. So, let’s walk through a typical transportation procurement process, including the freight bill audit. As a result of this analysis, we’ll have a clearer understanding of the unique complexities of transportation procurement and freight audit and payment. Most importantly, we can start identifying how to streamline the antiquated process of freight bill audit & payment.

Step 1: Generate an Internal Shipment Order. 

Vs in Procure-To-Pay (P2P) You Create a Purchase Order (PO)

A typical Purchase-To-Pay (P2P) process begins with someone creating a purchase order to procure needed goods and services. This step for P2P is fairly straightforward.

Now, it gets complicated. With freight audit & pay, the procurement starts with the creation of a shipment order and necessary shipping documents such as a packing list. Now for instance with ecommerce, this shipment order could have a direct relationship with the shipper’s customer purchase order. Moreover, there may be other documents or 3rd parties involved. For instance, the shipper, a 3rd Party Logistics (3PL), or even the carrier may create other documentation such as a freight Bill Of Lading (BOL) and/or shipping manifest. Also, there may be many other steps needed in this process depends on the shipper’s policies, industry practices, the destination of the freight, the type of shipment characteristics, and the type of shipping service.

Step 2: Shipper Tenders the Load to a Carrier.

Vs in P2P the Buyer Approves the Purchase Order

For this P2P procurement step, the typical buying organization will review the purchase order and the authorized manager will approve the purchase order. That’s it.

Now, for transportation procurement, “approval” is both complex and has different processes depending on the mode of shipping. For instance, for parcel shipping this approval step is usually automatic based on pre-established shipping rules and the parcel carrier contract.

Now, for non-parcel shipping, such as truckload, this load tender process can be a very involved process. In many cases, the shipper may make a load tender request to multiple carriers and load boards. Then at some point, a carrier will accept the load and the shipper approves it. So for freight shipping, the entire load tender process can be extremely complex as well as volatile. In many cases, much labor and false starts can occur to finalize which carrier will actually agree to transport the load.

Step 3: Schedule Shipment Pickup And Confirm that Final Delivery Occurred. 

Vs For Non-Transportation Procurement, Just Need to Confirm Receipt of Goods (no scheduling of pickup)

For a typical procurement process, it is usually fairly easy to confirm the receipt of the goods. All the purchasing organization needs to do is confirm the receipt  and inspect to ensure the goods purchased meets specifications.

With freight shipping, this confirmation process gets complicated. This is particularly true of non-parcel freight shipping such as truckload or LTL. For instance, many times the pickup and delivery times have to be scheduled. Worse, there are cases where both the shipper and carrier can incur costs or penalties as well as service delays at pickup and delivery. Also, there are challenges with the shipper confirming that a delivery actually occurred. Sometimes for both parcel and non-parcel shipping, the carrier does not record a delivery scan or proof of delivery (POD).

Step 4: Initially Conduct Freight Audit to Evaluate Carrier Performance. 

The Best On-Time Delivery KPIs To Make Your Customers Delighted

Vs Procure-to-Pay: Evaluate Supplier Performance

For both a typical P2P or freight audit process, supplier performance is an on-going process. The purchaser is both looking at each procurement as well as how well the supplier is performing as a whole. Now in a normal procurement process, this is usually a simple binary choice, Pass/Fail, for each widget delivered. 

For freight audit, evaluating a transportation carrier’s service performance requires a lot of data. For example, a single International package may have over 500 invoice data elements as well as over a dozen shipment status scans that include key shipment and  exception scans. As a result of all this data, some shipping operations may have hundreds of business intelligence (BI) reports to evaluate transportation service and financials. For more detailed discussion on service performance Key Performance Indicators, see my article, The Best On-Time Delivery KPIs To Make Your Customers Delighted. Also, see my article, The Horrific Delivery Exception.

Step 5. Continue Freight Audit to Match Carrier Invoices Against Rate Contract. 

Vs in Procure-to-Pay, use Three-Way Matching to Approve Invoices

Spotlight On Freight Bill Payment: 10 Pitfalls To Best Overcome

A typical P2P invoice approval process is fairly simple for most procurement transactions. Basically, the analyst reviews the vendor’s invoice and the authorized person approves the invoice for payment. For instance, most procurement processes follow a simple process of three-way matching. Here, the auditor or system matches the purchase order to the delivery receipt to the supplier’s invoice. 

Now with freight bill audit processing, most companies do follow the same three-way matching process. However, the large amount of variations of shipment charges require a lot more data to evaluate. For example, a parcel carrier could have over 10 different types of shipping services and over a thousand different types of accessorial surcharges. 

Worse, carrier contracts can be very complex including different types of discounts and terms. For example, a large shipper can have a multi-year carrier contract numbering almost a hundred pages with numerous amendments. To top this off, most transportation carriers have general rate increases at least once a year as well as adding or changing accessorial charges regularly. So for many shippers, approving freight invoices is a daunting and painful process. Additionally, the freight audit is a painful and volatile process for the carrier. Here the carrier has supposedly done the hard part by delivering the shipment. Now, the carrier has to be prepared to go through a gauntlet to just get paid.  

6. Freight Audit & Settlement: Dispute And Pay Freight Bills. 

Vs With Most Procurement Process, the Buyer Just Pays the Vendor

Lastly, the final step for any procurement process is for the purchaser to pay the supplier. For most purchases, this is a fairly pain-free process. However for freight audits, there are major problems because of frequent billing disputes and short-pays.

For non-parcel payments such as Less-Than-Truckload (LTL), this is still a very manual process and results in significant labor for both shippers and carriers. For parcel shipments, the payment process for many shippers can be highly automated. However, the challenge is that a weekly parcel invoice can easily consist of thousands of line item charges with charge amounts ranging from a couple of pennies to just a few dollars. So it is a real dilemma for shippers on how much labor to expend going through the dispute process to dispute charges with low monetary values.

For more information on how typical procurement processes work such as procure-to-pay, see Kissflow’s The Ultimate Guide to a Truly Effective Procure-to-Pay Process and Spendesk’s Purchase order processes: common issues and best practices. For more detailed information on a typical freight bill audit & pay process works, see The 7 Steps To Process, Audit, And Pay A Carrier’s Invoice. Also, see my article on freight bill processing detailing the 9 Ways Freight Bill Audit & Pay Complicates And Hinders Businesses.

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. Click here for my article that highlights the 9 major 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.

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

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