The Beneficial Insights from Freight Pay & Audit Services
Getting freight settlement right is necessary but not sufficient. #FastFix
My partner Chris Jones and I have both extolled the benefits and necessities of exploiting data in managing logistics. Without it, the logistics department is flying blind and missing opportunities with every transaction including freight settlement. Freight Pay & Audit (FP&A, easily confused with Finance, Planning & Accounting!), is the process of taking each and every freight invoice and confirming the charges, ensuring the amount is accurate, and that any corrections are raised and resolved with carriers. Any shipper with non-trivial activities should not only be utilizing FP&A for invoicing accuracy, but as a platform for improving performance across geographies, modalities, pricing, operational circumstances and carriers.
Source: Supply Chain in 5 and ChatGPT
Most companies have an accounts payable (“AP”) department to handle billing. But the specifics included in freight bills are rarely understood and inadequately assessed by AP departments. FP&A services review freight bills in light of the contract with the carrier and either approve them or highlight potential discrepancies that need to be clarified before completing the transaction. Many FP&A businesses price on a gain-share model on the net corrections from the examinations.
Buried within contracts and pricing schedules are freight “accessorials.” Some of the more common accessorials include fuel surcharge; refrigeration; tarping; detention; construction drop-off; unloading fees; and frankly hundreds more.
FP&A agencies cross-references that a load was delivered to an address that corresponds to a valid customer, that the accessorial charges are included in the contract, that a fuel surcharge aligns with price for Diesel fuel in the state at the time of the purchase, that if other charges were incurred, they are legitimate and correctly priced – as well as challenging accessorials not specified in the contract.
Often, FP&A agencies produce hugely insightful reports on their customer’s freight performance and cost by carrier. This is basic information that is used to grow business with a high-performing carrier, or to re-negotiate and/or cease using a carrier if there are recurring issues. This information often leads to tactics to improve performance, lower costs, and exploit helpful insights when fine-tuning the business.
I am privileged to have insights from my friend, Tom Nightingale, whose career is steeped in freight audit-related activities. He has been kind enough to share with us his “Top Ten FP&A Pointers.”
Data – Your freight reflects your sales, and every organization needs to understand where their sales are happening. With the data that is contained within freight audit, companies can have more comprehensive visibility into their sales trends and consumption patterns by SKU, Business Unit, Region or any number of other categories in a single pane view that always seems to challenge even the most sophisticated enterprise applications.
Accuracy – Freight billing is one of the most complicated ecosystems in commerce. The is an intertwined set of disconnected actors who write increasingly complicated contracts that are disconnected from the movement of the freight that originates in chaotic and far-reaching warehouses that is then moved by asset and non-asset players using direct and third-party resources with a variety of technologies and actors to then generate an invoice that is not likely understood by an accounts payable professional.
Speed – Accounts Payable professionals simply do not have the time, knowledge or resources to dig into the depths of a freight bill to understand if the freight classification was correctly applied, if a re-weigh was documented, if the lumper was authorized and if any of that matches the 80-page contract that a transportation buyer signed. Making the situation more challenging, carriers have grown in their sophistication and use seemingly innocuous tools such as accessorials to obfuscate price increases. Without the tools and in-depth knowledge of what to look for, freight invoices will either be paid late (and often accumulate steep late fees and/or risk continued service from that provider) or be paid inaccurately.
Oversight – Supply chains have become increasingly complex, multi-modal and geographically distributed. As such, supply chain professionals find it impossible to monitor what goes on downstairs, across town, on the other side of the country, or around the globe. The simple and innocent act of checking the wrong box on a TMS for “Adult Signature Required” vs “Signature Required” can cost a large shipper hundreds or thousands of dollars. A robust freight audit provider will catch errors such as this early and enable the corporate cost controls to correct costly behaviors.
Non-application of discounts – It is extremely common for a new contract to be negotiated or a new account number or location to be added and the to have the negotiated discounts either not applied, applied incorrectly, or applied late. The combination of audit process, technology and expertise can flag these misses and help ensure that they are institutionalized for the future.
Asymmetry of sophistication – By validating that accessorials are correct and having a professional who is exclusively focused on freight payment, shippers level the knowledge playing field and better enable data-rich discussions about total landed cost with a carrier at time of contract renegotiation.
Fraud – It is entirely too common for a shipper to provide their account number to a carrier only to find that number out in places that it was never intended to be used. With proper controls and visibility, shippers can be assured that their accounts are only being used for their freight and not being used in the transportation of another shipper’s freight.
Cost accounting – Accounting departments understandably struggle to correctly attribute freight to the appropriate cost centers and a good freight audit and payment provider matched with a robust General Ledger mapping system can automate the cost attributions to the appropriate departments and ensure that internal operations and cost of goods sold accurately reflect the true profitability.
IT investment and focus – Logistics departments and finance departments are often at the bottom of the prioritization when companies think about where to invest their IT dollars. As such, FP&A systems in both areas tend to be outmoded and hinder the ability to perform effective freight audit and payment beyond simple match-pay. By outsourcing this activity, companies eliminate the IT investment process and leverage a fractional piece of proven technology. And, when looking at the benefits of finding errors that previously went undetected and the more efficient deployment of finance resources, the decision funds itself.
“Freight audit and payment is fun” said no finance department, ever. However, a freight audit company who thoroughly performs their work and collaborates with the shipper and its carriers to ensure accurate and timely payment allows the shipper to focus its resources on activities that are more unique and valuable to the business.
There are obviously many additional benefits from FP&A providers for shippers. The preceding content is an excellent starter-list to illustrate some key and obvious advantages. The goal is to leverage FP&A providers beyond the audit and payment process as data insights from all shipment transactions are often revelatory and can jump-start the process of building a solid and informative base to help further improve logistics performance!