In the transportation industry, processing freight bills is a complex and labor-intensive task. In particular, Less-Than-Truckload (LTL) freight bill processing is both elongated and convoluted . Worse, freight bill audit processing is swamped with paper documents and underutilized data. Indeed, many shippers do not realize that the detailed information from freight bills holds many insights to improve both shipping and financial operations. Also, what is surprising is that freight bill payment is unlike payment processing in other industries. For instance, most procure-to-pay processes outside of the transportation industry only involve a simple 3-way audit matching purchase order, the invoice, and order receipt.

This article is for shippers and payors who may not realize that there are many ways to turn their freight bill auditing and payment process into an opportunity versus just another cost center. First, I’ll expose to you just how complex, error-prone this process is. This includes the seven arduous steps that freight bill auditors have to go through to process invoices and pay carriers. With you having a better understanding of this complex process, I’ll introduce you to the best ways to make this process more cost-effective. Moreover, I’ll provide you tips on how to use rich carrier invoice data to help you optimize your shipping operations.

The Major Challenge With Processing Freight Bills: Too Much Data, Few Insights.

 “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 shipment analytics 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. At the same time, the information from these freight bills can yield valuable insights to improve shipping operations, not just to pay invoices. However, this data is usually stuck in financial systems that operations cannot access.  For more details on freight bill audit & pay challenges, see my article, 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

Three Ways Shippers Process Their Freight Bills: Manually, Buy Software, Outsource.

Before discussing the arduous steps shippers take to process their freight bill, let’s discuss the three different ways freight payors process and pay invoices. See below:

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1. In-House Manual Freight Bill 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 for manual processing, shippers will usually use a carrier’s online payment portal or a weekly invoice consisting of either paper, a PDF, or electronic data file.

2. Buy Or Subscribe To Software Service.

Most software that has freight bill auditing capability is part of a transportation management system (TMS). To use this software, procurement analysts will first configure and load carrier rates into the system. From there they can process carrier invoices. Of course, business efficiencies can vary significantly depending on the software, types of transportation carriers, and company policies. Also, a key benefit of using software is that you can retain the shipping data for your own use. Thus, you can use this data for both financial and shipment analytics to improve shipping operations.

3. Outsource Freight Bill Audit & Payment.

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. On the other hand, it can be quite difficult for a shipper to get access to the raw invoice data provided by the carrier. This makes it difficult for the shipper to use carriers’ rich invoice data for analytics to improve their shipping operation.

The Seven Tedious Steps To Process, Audit, And Pay A Carrier’s Invoice.

No matter which of the three types of freight auditing a shipper uses, most go through the same labor-intensive processing steps. See below for a summary of steps used for freight bill auditing & payment.

1. Review Carrier’s Invoice: Kicking Off a Complex Audit & Pay Process. 

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, it is critical that the auditor affirms 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. Review Carrier’s Invoice Detail: Billing Detail Is Either Lacking Or Too Complex. 

Simple Data Access To Quality Electronic Freight Bills: Here Is How To Make This Less Painful For Shippers

Now, there are some shippers that may bypass this step as well as any auditing and just pay the invoice. One reason for this is because some smaller carriers do not provide detailed invoice data. In some cases, this is acceptable in that the carrier’s pricing is simple. In other cases, the payor does not have much choice as they have difficulty accessing the carrier’s electronic invoice detail.

However, more and more shippers or their 3rd party payor are downloading the electronic detailed data and importing the data into their audit system. 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. Surprisingly, importing carriers’ electronic invoice data is both technically and adminstratively challenging. For a more detailed discussion, see my article, Simple Data Access To Quality Electronic Freight Bills: Here Is How To Make This Less Painful For Shippers.

3. Manage Contract Rates: Extremely Labor Intensive and Error-Prone Process.

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If the auditor is using freight bill audit software, this step is just done periodically. Specifically, the internal or external auditor will load carrier contract details in the software when there is a new or updated contract. Also, rate updates are needed if the carrier has a general rate increase. Usually this happens once a year.

Indeed, this is a daunting task for many shippers. In fact, this is a major reason that many businesses outsource freight bill auditing to a 3rd party. Moreover, some very large businesses will have numerous contracts with carriers. Also in some cases, these proactive shippers are re-negotiating contract terms on an on-going basis. On the one hand, these constant amendments to contract terms do result in cost saving. On the other hand, these constant changes to contracts cause analysts to reload contract terms in the system, making auditing more complex and confusing. For more detailed discussion on this topic, see my article, Freight Payment Terms: A Painful Money Game, Its Purpose, Is There A Better Way?

4. Conduct Audit: Necessary, But Tedious Task Requiring Much Transportation Expertise.

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Once the audit team has the invoice data load and the contract terms are loaded, they need to conduct the following audit steps.

Freight Bill Audit Tasks

• Affirm that the transportation service was actually rendered such as a proof-of-delivery.
• Affirm that other value-added services were provided such as liftgate surcharge.
• 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 the auditor’s expertise, 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. Again, the more complex the carrier’s contract terms are, the more complex the audit. In fact, it is not uncommon for auditors to spend many hours processing freight bills and not identify any direct savings or credit.

5. Allocate Costs For Accounting System: Extremely Complex, But Very Valuable for Management.

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. Many companies can have complex GL coding schemes for transportation charges. This is to assure that these costs are allocated to the appropriate business unit or activity. 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. However, many businesses still manually GL code freight bills.

The bottom line is GL coding makes for accurate financial statements. Thus, this helps businesses to allocate costs to the appropriate activity or product line. As a result, businesses can make more informed operational and strategic decisions.

6. Manage Payments and Disputes: Timely Processing Needed to Avoid Late Payment Fees.

Once the freight audit is complete, 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 information needed for the accounting system to pay the carrier.

At the same time, there are a lot of things that can go wrong with this payment process. First, sometimes the payor will delay payment because they are disputing some of the carrier’s invoice charges. Worse case, his can take months to resolve and be a labor-intensive process. Also, some contract terms have very short payment terms where a payor can easily incur late fees if there is any delay. For instance, if the payor has a thorough audit process and contractually only has seven days to pay the carrier’s invoice, they can easily incur late fees.

7. Gather Analytics: Shippers Routinely Lack Access to Detailed Carrier Invoice Data For Insights.

Here the auditor or the freight audit system stores data for business intelligence (BI) and management reporting. Now, a major challenge for many shippers and payors is that they do not make available their carriers’ invoice data available to their shipping operations. It is amazing how many transportation departments do not see the invoice detail from the carriers they managed.

Without a doubt, carrier invoice data has many operational insights. For instance, a shipping department may not even realize that they are incurring large package charges or early delivery charges. This information is only available in the carrier’s invoice. Worse, the shipping department does not know they are getting address correction charges for the same delivery address every week. However if your shipping operation has access to invoice data, they can use this detailed data for analytics. Specifically, this data has historical shipment characteristics that operations can use to not only reduce costs, but also improve on-time performance. For a more detailed discussion, see my article, Data Analytics You’ll Need For Unsurpassed Carrier Delivery Results.

Data Analytics You’ll Need For Unsurpassed Carrier Delivery Results

How to Make Freight Bill Audit Process Better.

Finally, and most importantly, there are ways to streamline your freight bill audit and payment process. Moreover, it is critical for businesses to not lock insightful invoice data into financial system silos. Indeed, this shipping data is invaluable to your shipping operations. Below are eight tips to make your freight bill Audit process a win-win for both your shipping and financial departments.

Tips to Streamline Your Audit Process and Improve Your Shipping Operation

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

1. Keep Shipping Contracts Simple To Streamline Freight Bill Audit.
2. Favor Carriers And 3rd Party Partners That Provide Simple, Quality Freight Bill Data.
3. Be A Data Centric Business: Stop Locking Your Data In Systems That Are Or Will Soon Be Obsolete.
4. Leverage Data Analytics Where All Decision-Makers Have Access To All Freight Bill Data.
5. Focus Your Freight Bill Audit On Enabling Operations To Provide Cost-Effective, Competitive Shipping Services.
6. Focus Shipping Operations On Closing the Gap Between What Was Manifested Versus What Was Actually Shipped (And Subsequently Billed).
7. Automate / Optimize: Use KPIs To Continuously Find Ways To Minimize Labor Costs And Human Error.
8. Partner With Carriers And 3PLs To Have A Fault-Free Audit & Pay Cycle.

For more details, see my article, The Best Ways To Make Your Freight Bill Audit Process Better Benefit Your Shipping Operations.

Need help with an innovative solution to make your supply chain systems work together? I’m Randy McClure, and I’ve spent many years solving data interoperability and visibility problems. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. I specialize in proof-of-concept and operational pilot projects for emerging technologies. If you’re ready to modernize your data infrastructure or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.

References.

For more detailed information on freight bill auditing

• TraxTech’s The Ultimate Guide to Freight Audit
• Shipware’s Freight Payment Process 101
• 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

The Strategic Sourcing Process Using Data Analysis In 7 Steps: The Best Way For Unsurpassed Supplier Results

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