Reducing the Risk of Freight Bill Payment and Freight Audit

November 18, 2022

A traditional freight bill payment and freight audit process can eat into a shipper’s profits.

First, it is a labor-intensive process. Bills of lading generate invoices from carriers upon delivery of goods to the customer. The invoices then need to be checked against the bills of lading, agreed upon contracts, and transport rules.

Given the complexity of shipping nowadays, conducting a complete manual freight audit is extremely time-consuming. This same complexity can also cause in-house solutions to fail, forcing shippers to pay more for freight services than are necessary.

Second, repetitive audits of all carrier charges does not help to build relationships of trust and respect with favored carriers.

This article discusses the risks associated with freight bill payment and freight audit and how shippers can manage those risks to improve their bottom line.

  • Why freight bill payment and auditing creates risk for shippers

  • Is outsourcing better than processing freight payment and auditing in-house?

  • How railroad through rates are different from Rule 11 rates

  • Can shippers reduce risk and save money by switching from matchpay to autopay

  • How Princeton TMX TMS software reduces the risk of freight bill payment and auditing

Why freight bill payment and auditing creates risk for shippers

Freight bill payment is the process of settling accounts with carriers after they have completed delivery of goods and services. One shipment can generate multiple bills of lading and surcharges, leading to a series of complex invoices.

Freight auditing is the process of reviewing those invoices to make sure they are accurate and match the terms and conditions stated in the contracts. The auditing process should catch any mistakes and overcharges, such as incorrect accessorial charges. Accounts payable then adjusts the invoices before paying the correct amounts.

Shippers often don’t realize they lose money and data when they process freight invoices. Here are a few of the risks involved with the freight bill payment process:

  • Costly mistakes. Both shippers and carriers can make mistakes. Shippers can introduce errors when tendering loads, for instance, entering incorrect load data. Carriers and make mistakes with billing for detention fees, accessorial charges, and fuel surcharges. Both types of mistakes lead to an increase in transportation costs for shippers.

  • Processing shortcuts. Some shippers like to process payments by combining all the accessorial charges, detention fees, and surcharges into one lump sum. This practice makes it hard for transportation managers to know a shipper’s true transportation costs. The lack of detail, then, leads to poor decision-making.

  • Too much complexity. Contracting has too many variables. Because of this, some shippers may try to limit the number of carriers they work with. Fewer carriers may seem to simplify the shipping process. But when carrier capacity is tight, shippers will not be able to move their goods because they do not have enough preferred carriers under contract who will accept their tenders.

  • Poor carrier relations. To do it right, the auditing process takes time. Matchpay also slows the freight payment process. Slow payment for carrier services leads to poor carrier relations, forcing shippers to spend more for carrier services.

  • Staffing costs. Freight bill payment and auditing is labor-intensive. It takes many resources to ensure the accuracy of every invoice.

  • IT costs. Additionally, freight bill payment and auditing is heavily dependent on information technology (IT) resources to maintain and support the hardware, software, and network infrastructure.

Is outsourcing better than processing freight payment and auditing in-house?

Third party freight bill payment and audit companies have no incentives to help shippers reduce costs and improve efficiencies. They process the invoices, charge the shipper for the service, and their job is done. There is no analysis of the data so shippers can introduce efficiencies and reduce costs.

Shippers often try to perform their bill payment and freight audit in-house. It is possible if they have enough staff to do the work properly.

A transportation management system (TMS) can help streamline the process. TMS systems automate the tender process using pre-negotiated carrier charges and established tender rules, so that accurate carrier charges can be accumulated in the system and employed for payment under matchpay, or used as the basis for periodic spot audit.

How shippers can reduce risk and save money by switching from matchpay to autopay

Matchpay slows the freight settlement process, causing shippers to create poor relations with carriers. Matchpay requires back-and-forth negotiations between shippers and carriers after carriers have completed a delivery. Carriers won’t get paid until both parties agree about what the actual freight payment should be. Sometimes the wait can be more than 30 days after a delivery.

With autopay, however, shippers and carriers have pre-negotiated rates, including some accessorial charges. The pre-negotiated rates are entered into a carrier’s contract in a TMS system. So, a carrier can receive payment upon delivery instead of months later. And any charge discrepancies can then be easily negotiated during the accounts payable audit. The result overall result is better relations with carriers.

How railroad Through Rates are different from Rule 11 rates

A Through Rate is where a shipper pays one rate to the carrier of origin. In this arrangement, the origin carrier earns higher profits while paying all the other carriers involved in transporting the freight.

Rule 11 lets shippers choose the option of accepting and paying on individual rail carrier invoices. Rule 11 is more complicated than Through Rates, but shippers save money by negotiating lower rates with each of the carriers.

How Princeton TMX TMS software reduces the risk of freight bill payment and auditing

The Princeton TMS TMX solution automates the freight bill payment and auditing processes so shippers can substantially reduce risk and save on transportation costs.

In a nutshell, here are the benefits of using the Princeton TMX TMS system for freight bill payment and auditing:

  • Knowledgebase data. All the freight settlement data is available to the entire transportation management team regardless of location. Integrations with enterprise resource planning systems (ERPs) and other systems mean decision-makers can take advantage of hidden opportunities to increase efficiencies and drive down costs.

  • Autopay and matchpay. The Princeton TMX web-based TMS offers both matchpay and autopay. Shippers, however, will reduce risk and costs by using the quick freight settlement features in autopay.

  • More accurate accounting. Shippers will experience higher accuracy with less staff when they use Princeton TMX’s automated freight bill payment and auditing modules.

  • Contract automation. The Princeton TMX web-based TMS solution automates many of the tendering and contract management processes. Shippers can maintain far more contracts than they can with spreadsheets and by calling one carrier at a time. Also, transportation management teams no longer have to call or email carriers.

  • Support for Rule 11. Shippers will save on transportation costs when they can negotiate lower rates with individual railroad carriers.

  • Better communications mean no one has to waste time with phone calls and emails.

  • Better carrier relationships. When capacity becomes scarce, carriers are more likely to accept loads from “shippers of choice” who are quick to pay upon delivery of goods and services.