The timely and accurate audit of carrier freight invoices offers an often-overlooked opportunity to save operating expenses. Typically there is a 3 to 5 percent savings lurking there for the taking. In order to optimize freight expenditure and help improve operating cash flow, prudent transportation managers will include as part of their transportation strategic plan, an effective alternative for carrier freight invoice audit and payment.
There are several approaches that can be taken to accomplish this.
⦁ In-house Resources (transportation + finance departments)
⦁ Third-Party Freight Audit and Payment Vendor (the most common method)
⦁ Bank (optimal cash flow alternative)
In-house freight invoice audit and payment is most likely the best approach if a) your company is small, and b) your shipping volume is small. The task of handling match and pay can be tedious, and the coordination required between departments sub-optimizes the process flow. Typically what happens is someone in transportation verifies that the carrier was authorized to handle the load and passes the invoice to the finance department for payment. Finance handles the “approved” invoice as just another invoice, and hence the true audit requirement to catch carrier invoice errors only gets caught by exception. What is needed is a more disciplined approach to ensure that the savings are captured, and that leads most companies to seek out the services of a 3PL Freight Audit and Payment Vendor.
Using 3PL Freight Audit and Payment (FA&P) Vendors is the most common approach to ensuring optimization of freight expense and capturing billing error savings. FA&P vendors justify their existence by ensuring that billing errors are caught and corrected, which generates savings on a continuous basis. At one time this was their sole purpose. In today’s world, this has become a back-door supply chain consulting role of sorts, where the vendor, depending upon the talent and experience base of those employed, touts a variety of supply chain consulting capabilities. These vendors’ capabilities vary widely, as most of the “talent” did not gain their expertise and experience working on the shipper’s side of the desk. For this reason, while they are experts at FA&P, they are not the best alternative if you need supply-chain consulting or coaching help.
Finally, there is the Bank alternative for FP&A. This is not a common approach, though I see in the industry trade magazines that banks are making a pitch to seek them out as an optimal cash flow alternative to the 3PL FA&P vendor. They offer flexibility, and can eliminate the middle man (i.e., 3PL FA&P vendor). While I would tend to agree with their pitch, from a tactical and practical viewpoint, the Bank is the better alternative for a big company with large shipping volume. They seek out clients who have large freight expense budgets and require more sophisticated cash-flow and payment alternatives than your “typical” shipper.
So, what are the take-aways here?
⦁ Have a documented freight invoice audit and payment process.
⦁ Make the process an integral part of your strategic planning.
⦁ Understand there is usually a 3 to 5 percent savings to be had as a result of carrier invoice audits.
⦁ Hire a professional to do the job. 3PL FA&P vendors charge by the invoice.
⦁ Build a Transportation Management audit into the process to ensure that it’s working.