Dealing with freight audit and payment in the transportation industry can be a frustratingly messy and disorganized ordeal. One can’t help but wonder why it’s so different from standard business invoice processing. To get a clearer picture, let’s explore the core distinctions between these procedures. On one side, there’s the freight bill audit and payment process; on the other, the typical procure-to-pay (P2P) process in businesses. Although both freight audit & pay and conventional business invoice processing aid a company’s procurement process, their differences remain puzzling since both methods simply handle invoices and pay suppliers.
In this article, I’ll walk you through the standard P2P procurement steps that companies follow to settle an invoice. Alongside each step, I’ll shine a light on the intricate, excruciating, and disordered aspects of freight bill audits and payments. By the end of this article, not only will you be more informed about the drawbacks of freight bill & payment but also gain insight into potential solutions. In particular, these are solutions that can streamline freight audits and optimize invoice data usage to enhance shipping performance.
Without further ado, let’s dive into the typical 6-step procedure for invoice processing & payment! When it comes to ordinary business purchasing, everything starts with creating a purchase order (PO) – that’s where our journey begins. Let’s go!
1. P2P: Create a Purchase Order (PO) Vs Freight Shipping: Alert Carriers That There Is A Load To Ship.
A typical Purchase-To-Pay (P2P) process kicks off with someone creating a purchase order to procure needed goods and services. On the other hand, freight audit & pay is initiated when the shipper alerts carriers that there they have a load to ship. During this procurement step, a freight Bill Of Lading (BOL) and / or shipping manifest is created. Now, what is unusual is these documents can be created by the shipper, a 3rd Party Logistics (3PL), or even the carrier. So this can be complicated depending on the shipper’s policies, industry practices, where the freight is going, type of shipment characteristics, and type of shipping service.
2. P2P: Approve Purchase Order Vs Freight Shipping: Tender The Load To A Carrier.
For this P2P procurement step, the typical shipping organization will review the purchase order and the authorized manager will approve the purchase order. Now, for parcel shipping this approval step is usually automatic based on pre-established shipping rules. For non-parcel shipping, such as truckload, this load tender process can be a very involved process. In a lot cases, the shipper may make load tender requests to multiple carriers, until a carrier and shipper come to agreement. 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.
3. P2P: Confirm Receipt Of Goods Vs Freight Shipping: Schedules Pickup And Confirm Delivery With Carrier.
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). Worse, the carrier has the delivery information, but it is a challenge for the shipper to obtain the shipment status. This can be for numerous reasons: carrier’s IT, shipper’s IT, shipper not taking the initiative, or carrier internal policies. In particular, a carrier’s policies can elongate the process for authorizing a 3rd party auditor to access the shipper’s invoice and shipping status data.
4. P2P: Evaluate Supplier Performance Vs Freight Audit: Evaluate Carrier 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.
5. P2P: Approve Invoices Vs. Freight Audit: Manage Carrier Rate Contracts And Audit Freight Bills.
A typical 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. P2P: Pay Vendor Vs Freight Audit & Settlement: Dispute And Pay Freight Bills.
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.
Freight Bill Processing: The Preposterous Challenge And The Insidious Ways It Can Make Your Shipping Operations Go Blind.
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. 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.
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.