The Freight Payment and Audit Process – a Work in Progress

For the past several years, American Shipper, in partnership with the Council of Supply Chain Manage­ment Professionals (CSCMP) and Retail Industry Leaders Association (RILA), has successfully benchmarked more than 250 payers (shippers and 3PLs) on their transportation invoice processing and payment practices and systems. Participants completed a 28-question survey covering all modes of international and domestic freight transportation.  The report focused on transportation spend in three segments—procurement, execution and settlement.  Here are some of the major findings and recommendations.

The 6 Key Invoice Processing Functions

The report looked at the six key functions of invoice processing.  They include Invoice Receipt, Validation, Dispute Resolution, Approval, Payment and Audit.  The study found that about a quarter of the respondents outsourced the receipt and validation functions while over 40 percent use automated tools; the remaining 30 percent of the respondents process their invoices manually.

Two thirds of respondents use manual processes to resolve billing disputes.  Forty-five percent of respondents approve invoices manually while 42 percent approve them electronically.  The remainder are approved through a third party.  In fifty-three percent of the cases, the invoices are paid electronically while about a quarter are paid manually and another quarter are paid through an outsourced provider. 

Forty-five percent of the invoices are audited manually while 29 percent are done electronically and 26 percent are audited through a third party. The majority of shippers automate, or outsource the receipt and validation of invoices while dispute resolution remains highly manual.

Payment Intervals

The survey respondents (both 3PLs and shippers) are paying their freight bills later this year than they have in previous years.  The number of respondents paying their invoices 30 to 45 days after invoice date increased by roughly half, while the number of those who pay in less than 30 days slipped noticeably. Large shippers tend to pay their bills later than their small and midsized counterparts. Nearly one quarter of large shippers pay bills after 45 days or more, compared to only 4 percent of small and midsized shippers.

 Auditing Practices

Effective Auditing Practices are an important part of freight spend management. In previous years, the report highlighted that those shippers who conduct pre- and post-payment audit tend to be Best in Class. It appears the market has gotten that message, as the number of respondents who conduct both audits has increased in 2013 after waning in previous years.  Thirty-eight percent of shippers conduct both pre- and post-audits.  This compares with 29 percent in 2012, 37 percent in 2011 and 47 percent in 2010. 

 Quality of Freight Audits

The survey looked at both the quantity and quality of the audits.  It studied the fifteen items on an invoice that should be audited every time. Based on previous research studies it was assumed that only about half of the market actually reviews each invoice in some capacity. Even fewer review all the critical elements of each invoice beyond the obvious aspects, such as rates, assessorial costs, and fuel surcharges.

Continuous Improvement?

More than half of survey respondents see continual improvements from their auditing process. Last year's study showed there was a lot of room for improvement, with only 80 percent of respondents claiming they incorrectly paid less than once every 20 times. What's concerning is a fairly large pool of respondents also said they have seen stagnation in the improvement of their freight pay process, particularly manufacturers, almost half of whom said the improvements largely stopped after the first year.  It is a challenge for shippers and vendors to get beyond the initial, noticeable improvements that come from an initial investment in freight payment to make those improvements consistent.

It was encouraging to see that more than half of survey respondents see continual improvements from their auditing process. Last year's study showed there was a lot of room for improvement, with only 80 percent of respondents claiming they incorrectly paid less than once every 20 times. What's concerning is a fairly large pool of respondents also said they have seen stagnation in the improvement of their freight pay process, particularly manufacturers, almost half of whom said the improvements largely stopped after the first year.  It is a challenge for shippers and vendors to get beyond the initial, noticeable improvements that come from an initial investment in freight payment to make those improvements consistent.

Recommendations in American Shipper Report

The following are few of the key recommendations.  High-volume shippers (e.g. those with a similarly high volume of invoices)­ should seriously consider freight payment systems and outsourced services strictly based on the significant cost savings and efficiency opportunities that they present.  Shippers should focus on turning their freight payment data into actionable information to assist them with their procurement and network optimization initiatives.