A Guide to Freight Payment Types, Solutions & Why Shippers Use These Services

Large shipping companies that average at least $1 billion in annual revenue can report processing costs that come in 70 percent lower than smaller shippers in the market. The implications of reduced cost in just this one area of processing and freight payment management can have a significant impact on profits. But freight payment remains a very complex and often error-prone process.

The volume of invoices also grows rapidly, meaning company expansion inherently lends itself to increased complexity across invoices of all types, and together, it can account for millions in shipping spend. According to Eric Johnson of the Journal of Commerce, "Using a common industry estimate of freight spend representing 5 to 10 percent of total revenue for a shipper, that would equate to $50 million to $100 million in freight spend. If we assume an average invoice of $2,500 across modes, that's roughly 40,000 invoices over the course of the year." It is easy to see why payment services and related process management and auditing still holds as one of the most vital services managers must maintain.

What Are Freight Payment Services

Freight payment is an assortment of services that act much like a general accounts payable service for the various accounts and invoices created by shippers. Payment and financial service providers serve as an intermediary between shippers and carriers, managing the actions to receive, process, and pay invoices. Freight payment service may also be known as freight audit and payment. The ultimate goals of all related services are to help shippers and carriers manage high volumes of freight invoices, maintain deep business intelligence levels when it comes to cost management, and help build stronger relationships between shippers and carriers that help both drive business growth.

The Problems of Traditional, Delayed Freight Payment Processing

Traditional freight billing, which revolves around manual processes and old-fashioned paper filing and recording, is often wrought with issues and leaves plenty of room for human errors and mistakes. Some of the most common challenges involved in freight billing and shipping cost management usually center around missed charges, exclusions, and mistakes in what is and is not figured into cost allocations. Small errors certainly will add up over time; however, more serious errors can have a huge and immediate impact on supply chain finances. These often occur when there is a lack of freight auditing, poor documentation, and lax monitoring of the transportation network. Auditing is not just about catching one-time mistakes and errors, but it also includes routine issues that can go undetected and add up. If left unaddressed, these issues can dramatically impact the financial stability of the entire supply chain.

Shippers that outsource part or all of their freight audit and payment process have lower average invoice processing costs. They also tend to experience fewer overall errors and have easier time managing finance and tracking supply chain budgets effectively. According to Johnson, "The study delved into how outsourcing the payment function plays into payment terms with carriers, perspectives on using a bank-backed outsourced FAP vendor versus non-bank-backed entities, and uses of auditing and payment data for analytics purposes.

Approximately three quarters of survey respondents manage freight for companies with more than $1 billion in revenue, including nearly 40 percent from companies with more than $5 billion in revenue. Sixty-five percent of shippers surveyed said they manage freight across all seven modes analyzed in the study: full container load, less-than-container load, truckload, less-than-truckload, parcel, drayage, and rail." Those corporations that use a third-party vendor for auditing and freight payment tracking and monitoring report an average payment expense that is a staggering one-third of those that manage the entire process in-house.

A shipper that can reduce invoice management, tracking, and payment processes from $20 to $10, whether they do it in-house with better automations or turn to third-party assistance, can greatly reduce expenses. This simple action could potentially cut their administrative costs associated with paying the bills from $800,000 to $400,000, which is precisely why freight payment services, freight spend, and invoice auditing are so vital for omnichannel supply chain managers today.

Reasons to Outsource Freight Auditing Services

When it comes to embracing the opportunities for improvement and advancement that come from freight auditing services, 6 key reasons for doing so stand out:

  1. Improvements that prepare the network for the future. As work becomes more and more connected, new customers and business partners arise in countries all around the globe. Doing business across international borders brings an entirely new level of complexity for management and financial advisers, so embracing automated processes and freight auditing and payment services is a must.
  2. Remember that customers are still likely thinking locally. Even as more people shop globally they likely still view shippers as local entities. They anticipate and expect fast and friendly services, often forgetting they are not just ordering from across the state but oftentimes across the country or around the globe.
  3. Transportation and e-commerce are unique within the industry. Moving goods for e-commerce requires a blending of services and typical supply chain pathways that may involve a mix of brick-and-mortar retailers, DCs, and other steps that do not look comparable to the traditional linear supply chains of the past, creating more opportunities for error within invoicing or other processes too.
  4. Cost allocation cannot be compromised, no matter what. Cost allocation is a practice managers use to monitor individual aspects of the supply chain and the network as a whole. It's no surprise that cost allocation has become such a huge part of your shipping operations.
  5. Efficiently manage freight payment, working capital & trade finance. When you have freight payment and trade finance programs in place as part of an all-encompassing FAP solution, you also have access to a real bank. Freight payment can seem like an archaic, time-consuming process. It doesn't have to be. Instead of a lengthy, drawn-out, and non-regulated payment process, Intelligent Audit, a freight auditing company, for example, works with a real bank to move money via TriumphPay to deliver faster carrier tendering acceptance, and streamlined payment processing.
  6. Preparing for the future makes things easier today. Why look for a freight payment solution partner? Embracing modern innovations, improving freight payment services, and enhancing collaboration is one of the best ways to plan for the future while securing a path toward growth and success today.

The Types of Freight Payment Services

Knowing what service options are available for freight management and payment is critical to understanding how they can impact the supply chain network. Some common options for payment services include:

Broker or Third-Party Factoring

Freight brokersprovide financing and payment reporting on behalf of the company, usually for a flat-rate fee, which enables shippers and carriers to focus on tasks other than invoicing. This is thanks to the use of online dashboards, apps, and innovative software.

Carrier Factoring

This financing option delivers services for shippers that come with no minimums, no reserve, and a low flat rate. Carrier factoring involves the selling of invoices to a factoring service that then takes on the responsibility of billing the shipper and ensuring the carrier is paid faster.

Load Board Integrated Payments

Shippers and brokers alike take advantage of the innovation and automation provided by onlineload boardsto post loads and get bids quickly and easily. Both parties can maintain high-capacity levels and pull from a vast pool of available brokers and carriers. This improves capacity management, successful rate negotiation, and access to quality carrier payment terms.

Prepaid Freight

When logistics directors and executives can easily estimate and predict how much their freight loads will cost to ship, freight payment services become much simpler and more streamlined. In these kinds of situations, a prepaid approach may help free up resources, streamline payments, reduce errors and mistakes, and prioritize shipments and clients.

Collect Freight

This option continues to be a popular choice for supply chain freight payment reporting managers. It is a financing option that focuses on the amount of freight being transported, which is the basis for the quoted shipping rate. Factors such as volume, weight, or number of shipments made can also impact the predetermined base fee.

Digital Credit and Cost Underwriting

Added fees and surcharges such as inspections, handling charges, legal fees, custom payments, taxes, and similar operational expenses also must be taken into account. This is important to remember when managing payments and finding the best match when it comes to freight servicing and payment terms that shippers have to choose from.

Advanced Freight Billing and Payment Auditing

Keeping up with new and innovative payment protection and service options is also important for supply chain managers to keep track of. Advanced billing and auditing services can help streamline payment options and make it easier for shippers to capitalize on payment services.

Secure, Bank-Based Payment Management

The final options for securing freight payment services that shippers can take advantage of is securing funding and financing from a bank or federally backed payment management service provider. This option provides the additional security, backing, and stability that large shippers need to stay competitive in the market today.

What Shippers Need to Look for in Selecting a Payment Services Provider

Payment service providers, also frequently referred to as freight payment service providers, are third parties that offer merchants assistance to help streamline the process of accepting and managing invoice payments. Using a freight audit and payment vendor is commonplace for many shippers in the US. With a large chunk of their logistics expenses incurred with transportation, outsourcing payment services has become more common than ever. As more shippers move to outsource their bill payment and freight audit services, it's important to remember a few tips that will help when choosing a freight audit and payment vendor. Shippers must also consider their transportation network strategy when deciding how a freight payment processing solution will optimize their efforts. They need to consider the following before making a final decision on a payment services partner:

  • Experience in all modes of transportation. It defeats the purpose of having an auditing provider if a separate one is needed for each individual shipment mode. The important takeaway is ensuring that your auditing and payment solutions provider can aggregate and ingest data from across all systems regardless of mode, including parcel.
  • Intuitive auditing that processes everything based on predefined variances and rulesets. Clearly defined services and expectations, for shippers and carriers alike, ensures everyone knows what to expect and what their share of the responsibilities are in every instance. This also forms the basis for reporting and performance management that can help your team manage by exception and avoid losses deriving from delays or misunderstandings in the data.
  • Continual improvement with an eye towards long term goals. Look for a freight auditor that will not only audit and pay your bills but will also suggest new strategies to help achieve the long term overall goals of your organization
  • Easy-to-understand dashboards and filter functions to sort data by SKU, lane, zone, and other granularities. A technology provider that offers visibility to every aspect of your transportation spend allows your organization to quickly analyze data and compare long-term data points and historical trends. Also, such insights give rise to a better way of approaching your carrier selection strategies, knowing when to leverage zone skipping or hub injection and alternative fulfilment methodologies to reduce costs.
  • Data anomaly detection and correction. Detecting anomalies within the data, such as missing ZIPcodes for certain regions and other discrepancies early on makes them easier to mitigate and also allows for faster responses and better collaboration among stakeholders. Additionally, data anomaly detection and correction ensures the next step of the process, normalization and analysis, doesn't hit any snags in analysis.
  • Data normalization for accurate comparisons. Collecting data but being unable to properly analyze and apply it is pointless, so proper auditing and examination are vital for data normalization and utilization. Also, most systems weren't originally designed to be cross-compared, so normalizing the data into a standard format ensures that everything can be compared as best as possible without sacrificing on quality and value.
  • Actionable insights that help to optimize carrier selection and lower total spend. Taking real-time data and insights can help shippers better plan and prepare for similar situations down the road in order to improve efficiency and reduce the chance of repeat errors and mistakes from occurring again. Furthermore, actionable insights should be automated, bringing variances from target KPIs to the attention of users through push notifications to trigger intervention. After all, automation can do a lot in modern shipping and freight management, but there will always be instances where a manual review or intervention may be necessary.
  • Bank-based, secure settlement and payment processing. Strong financial backing gives any shipper a competitive advantage, especially during tight economies and unstable markets. It also alleviates much of the credit risk associated with shipping to new and emerging markets or when working with new startup brokerages and 3PLs too.

Streamline Freight Payment WIth Intelligent Audit

The global supply chain must be poised to take full advantage of the very best technology for all aspects of shipping. Doing so can drastically improve efficiency, safety, and tracking. Automated payments, real-time data analysis, and freight payment services continue to drive the market today. A good freight audit company has the capacity to communicate with third parties, collect data, properly manage financial records, implement invoice tracking, and keep track of shipping metrics. Finding the provider that meets all your freight payment management and servicing needs is critical for future success and continued growth. Contact Intelligent Audit today to learn more and to get started!

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