In the transportation industry, processing freight bills can prove to be a complex and tiresome task. More so, the freight bill audit process is often swamped with underutilized data that could otherwise enhance shipping operations. Especially for Less-Than-Truckload (LTL), it is unlike most industries where bill payment does not require extensive effort. For instance, most procure-to-pay processes only involve a simple 3-way audit matching purchase order, the invoice, and order receipt.
This article aims to guide you through the intricacies shippers face when processing freight bills. Moreover, to foster a deeper comprehension of freight bill processing, I’ll describe the seven steps of freight bill auditing and payment typically adhered to by shippers. By having a common understanding of this complex process, I’ll introduce to you the best ways to make this process better and optimize your shipping operations.
The Major Challenge With Processing Freight Bills: Too Much Data That Goes Unused.
“We are drowning in information but starved for knowledge.”John Naisbitt
For the transportation industry, freight bill audit & pay is a lot more data intensive than most other industries. To start with, a lot of freight bill processing involves paper documents or PDFs. As a result, this leads to human data entry errors, increased costs, and lost savings. Now, more and more shippers are digitizing their freight transactions. However according to Mckinsey as of 2022 there are still a lot of companies processing paper documents. For example, roughly 40% of the Bill Of Lading (BOL) process has paper records for containerized shipping. So manual processes like this are a hindrance to getting good quality data for shipping and auditing.
Also, even if a shipper has their freight bill processing automated, there are still extreme challenges with auditing and paying freight bills. To detail, issues include no delivery receipt, too much data, complex rate structures, need a shipping expert to audit freight bills, and many more challenges. Worst of all, these freight bills can yield valuable insights to improve shipping operations. However, the data is stuck in financial data silos that operations cannot access. For more details on freight bill audit & pay challenges, click here.
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. 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 the details on the 9 ways freight bill audit & pay complicates and hinders businesses.
How Shippers Process Their Freight Bills: Manually, Buy Software, Outsource.
Before discussing the steps shippers take to process their freight bill, let’s discuss the three different types of processing. See below:
- Manual Matching. Here a shipper pays an in-house staff to manually process invoices, conduct audits, and authorize payment. In a lot of cases, any shipping data generated is a by-product stored on the employees desktop or the company’s network drive. Also, shippers can usually use a carrier’s online payment portal or a weekly invoice consisting of either paper, a PDF, or electronic data file.
- Buy Or Subscribe To Software Service. Most software that has freight bill auditing capability is part of a transportation management system (TMS). So for software that processes freight bills, procurement analysts will need to configure and load carrier rates in the system. Of course, business efficiencies can vary significantly depending on the software, types of transportation carriers, and company policies. Also, one benefit of having your own software is that you own the shipping data and you have the opportunity to leverage it for your entire shipping operation.
- Outsource. Due to how complicated freight bill auditing is, many medium and large shippers will outsource their freight bill processing to a 3rd party audit firm. In most cases, the audit company will receive the carriers’ invoices electronically and process for payment after they audit the freight bills. In many cases, the shipper can review business intelligence (BI) reports online on the 3rd party auditor website. Also, it is can be quite difficult for a shipper to get access to the raw invoice data provided by the carrier.
The 7 Steps To Process, Audit, And Pay A Carrier’s Invoice.
No matter what type of freight auditing a shipper uses, most go through the same processing steps. See below for a summary of steps used for freight bill auditing & payment.
1. Review Invoice.
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, the auditor will affirm the invoice total and the payment due date. Depending on the type of processing, this information will be on the carrier’s payment portal, in a data file / e-mail, or a paper invoice.
2. Import / Review Invoice Detail For Completeness.
Now, there are some shippers that may bypass this step as well as any auditing and just pay the invoice. However, for most shippers they will make sure the detailed data is cleansed and normalized. For example, initial invoice review could be part of a data file import process . Here the auditor confirms that the sum of the detailed data equals the invoice total.
3. Manage Rates / Contracts.
If the auditor is using freight bill audit software, this step is just done periodically. Specifically, carrier contract details are loaded in the software when there is a new or updated contract. Also, rate updates are needed if the carrier has a general rate increase that usually happens once a year.
4. Conduct Audit.
First as part of the audit, the auditor will affirm that the service was rendered such as a proof-of-delivery. Also, they will affirm that other value-added services were provided such as liftgate surcharge. Next, the auditor will 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 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.
5. Allocate Costs For Accounting System.
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. 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.
6. Manage Payments.
Now, the freight audit is complete and the auditor or designated person authorizes payment of the invoice. If the auditing software is integrated with the business’ accounting system, the system will transmit the “OK-to-pay” transaction. This transaction will have the necessary information for the accounting system to pay the carrier.
7. Gather Analytics.
Here the auditor or the freight audit system stores data for business intelligence (BI) and management reporting.
Now, these are the typical steps that a shipper or their 3rd party provider conducts as part of a typical freight audit and payment. Also, these steps generally are the same for parcel carriers as well as any non-parcel carrier. Further, some shippers may bypass many of these steps and just pay the bill, while other shippers will do a detailed audit. Specifically, the audit can include checking for applicable discounts, verifying accessorial charges, checking for late deliveries for applicable refunds, confirm billed weights are correct, and that the billed charges are applicable to that particular shipper’s account. Also, the audit services can include disputing charges, handling exceptions, and producing invoice reports.
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. Additionally, 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
Finally, and most importantly, there are ways to streamline your freight bill audit and payment process. For details, see my article, The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations.
The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations.
Freight bill audit processing can be a complex and troublesome ordeal for many businesses. Issues are many to include incomplete information, data overload, inefficient systems, and intricate rate contracts. To make matters worse, freight bill processing not only hampers innovation for shipping operations, 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.