Navigating through the freight bill audit and payment processing can be quite a maze, causing headaches for shippers and carriers alike. One common challenge is invoice discrepancies, where even the smallest error in billing info can result in payment delays and disputes. So, let’s dive into the top ten pitfalls to avoid when processing and paying freight bills.
But don’t worry, there’s hope to streamline this costly, convoluted process! This is because I have some possible solutions to get us out of this mess! By the end of this article, you’ll find some solutions and tips to help make freight bill audit and payment easier. So let’s get started with the pitfalls of freight bill audit and payment processing.
- 1. Surprise Freight Bill Fees and Surcharges.
- 2. Shipper Inaccurate With Their Shipment’s Freight Classification Or Dimensions.
- 3. An Over Complicated Freight Bill and Audit Process.
- 4. Unnecessarily Tying Up Cash Flow and Working Capital In Freight Bill Processing.
- 5. Having Poor Visibility into Transportation Spend.
- 6. High Labor Costs Handling Freight Bill Errors And Overcharges.
- 7. Incurring Late Freight Bill Payments and Penalties.
- 8. Regularly Having To Dispute Freight Bill Charges And Lengthy Resolution Processes.
- 9. Losing Trust In Carrier Due To Their Lack of Transparency in Their Billing Practices.
- 10. Over Complicating Freight Bill invoicing With Different Discounts Depending Who Is Paying The Freight Bill.
1. Surprise Freight Bill Fees and Surcharges.
First, freight bills often include hidden fees and surcharges that can significantly increase costs. This includes such freight charges as fuel surcharges or accessorial fees for additional services like liftgate delivery. The reasons for these surprise fees and charges are usually the result of complex contracts or multifaceted shipping services such as International shipping or special services such as shipping hazardous material. For more details, see my article, Shipping Fee Surprise – Here Is How To Overcome Unexpected Package Surcharges.
2. Shipper Inaccurate With Their Shipment’s Freight Classification Or Dimensions.
More and more carriers are using dimensional pricing based on the size of the shipment. In these cases, it is key for smart shippers to document their shipment’s dimensions before shipping. Indeed, this is how to avoid many surprise shipping costs and even penalties. Also, especially in non-parcel shipping, shippers have the responsibility to properly identify the freight class of their shipment.
So increasingly, it is incumbent upon the shipper to accurately specify their shipment’s actual weight and also, either the weight class or the dimensions. Otherwise, carriers will make an adjustment to the freight bill based on the freight’s actual weight, dimensions, or commodity class type. For more details on parcel pricing see my article, Package Delivery – See How To Stop Surging Costs And Make Your Customers Happy.
3. An Over Complicated Freight Bill and Audit Process.
The complex nature of freight billing can result in errors and discrepancies, making it challenging to accurately audit invoices. For instance, a company may receive multiple invoices for the same shipment or incorrect charges due to manual data entry mistakes. For more on how to minimize billing issues, see my article, The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations.
4. Unnecessarily Tying Up Cash Flow and Working Capital In Freight Bill Processing.
Delays in freight bill payment can strain cash flow and working capital for carriers and 3PLs. As a result, this can affect a company’s ability to fund operations or invest in growth opportunities. In particular, this can happen with either a “slow” payor or with elongated freight payment terms such as net 30 or 60 days. Worse, I have seen cases where a large publicly traded company tells their carriers that they are delaying payments 90 days. Reason: to make their quarterly earnings report look better!
5. Having Poor Visibility into Transportation Spend.
Without proper tracking and analysis of transportation spend, companies may struggle to identify cost-saving opportunities or negotiate better rates with carriers. Indeed, this lack of visibility can lead to overspending on freight services. For ideas to get better data visibility over your transportation spend, see my article, Simple Data Access To Quality Electronic Freight Bills: Here Is How To Make This Less Painful For Shippers.
6. High Labor Costs Handling Freight Bill Errors And Overcharges.
Resolving billing errors and overcharges requires time and resources from employees for both the carrier and the payor. This results in increased labor costs. For example, staff may need to investigate discrepancies, communicate with carriers, and process adjustments. For a comparison between procurement processing in other industries compared to the transportation industry, see my article, Here Is Why Freight Audit & Payment Is More Painful And Volatile Than Simplistic Purchasing.
7. Incurring Late Freight Bill Payments and Penalties.
Delayed freight bill payments can result in penalties imposed by carriers. Worse, on-going late fee penalties not only result in unnecessary costs to the payor, but also degrades the working relationship between the carrier and payor. In many cases, excessive late fees are driven by unrealistic contract terms. For example, a net 7 days to pay is not realistic if there is a need by the payor to do a detailed audit.
8. Regularly Having To Dispute Freight Bill Charges And Lengthy Resolution Processes.
Disputing incorrect charges on freight bills can be a lengthy and cumbersome process. In many instances, this requires extensive documentation review and communication with carriers. As a result, resolving disputes may take weeks or even months. Without a doubt, this causes frustration and potential financial losses. Worse, the labor costs can be more than the actual charge being disputed.
9. Losing Trust In Carrier Due To Their Lack of Transparency in Their Billing Practices.
Some freight bills and payment processes lack transparency. As a result, this makes it very difficult for companies to understand the breakdown of charges or verify their accuracy. For example, a carrier may only provide a summary charge or does not provide detailed information in their invoice to verify the charge. As a result, this lack of transparency can lead to mistrust between shippers and carriers. Besides a carrier just having a sorry service performance record, I have seen many shippers lose trust in a carrier. As a result, the shipper just stops shipping with the carrier because of the carrier’s lack of transparency in their invoicing practices.
10. Over Complicating Freight Bill invoicing With Different Discounts Depending Who Is Paying The Freight Bill.
Some of the most complicated freight bills to audit are the ones where carriers give different discounts for the same shipment based on who is paying the freight bill. For example, a 10 Lb ,zone 5 package with the same service commitment can have significantly different freight discounts based on who is paying for the shipping. There may be some good reasons for the carriers to offer discounts based on whether the payor is the shipper, receiver, or a third party. However, it also further complicates the audit & payment process adding more labor and confusion to an already complicated process.
For more information of the challenges with freight bill processing and payment terms, see Denim’s Understanding Freight Payment Process For Freight Brokers, Freightwaves’ What Are Net 7 Payment Terms, ComFreight’s What Is and What Are the Types of Freight Payment Services & Options, and Cass Information Services’ Extending payment terms with your carriers? Make sure you do this.
Also, to explore 8 possible technologies and methodologies that could ease the entire process, see my article, Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?
Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?
Freight bill processing can feel like a high-stakes money game between shippers, payors, and transportation providers. For the most part, shippers dread the daunting and time-consuming task of auditing freight bills to process payments to carriers. Meanwhile, carriers – particularly parcel and Less-Than-Truckload (LTL) carriers – face their own set of challenges when issuing invoices and resolving disputes with payors.
So, what is the root cause of this painful money game? Complex freight payment terms in transportation contracts. Yes, if you have a complicated carrier contract, this leads the pack in the many pitfalls to freight bill processing. But why does it have to be this difficult? Could there be a simpler solution? In this article, Click here to explore the basics of freight bill payment terms. Also, I’ll detail 8 possible technologies and methodologies that could ease the entire process of freight bill audit & payment.
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.