I know what you’re saying; “Freight payments? You’re talking about freight payments?” It’s not anything most of us think about much, but maybe we should give it a little more attention – there may be some gold to be found!

Generally, freight payments are managed as a sub-set of the Accounts Payable group and managers are usually satisfied with the results (see poll results below). The focus is usually on making sure carriers are paid on time and the flow of products is not interrupted. Charged rates versus contract can be very complicated to reconcile so many times these are left for after-the-fact audits, either internal and/or by recovery firms, if audited at all. Recovery firms are ready and willing to audit and take a percentage of their findings. They usually do a great job and can generally identify substantial refunds, even after taking their fee.

In a recent Peeriosity Accounts Payables research area webcast (one of 10 research areas), a member company led a discussion on how Shared Services is successfully managing its freight payment process. Most notable, our feature company viewed freight payments as a critical back-end activity tied closely to the entire logistics chain. While it is organizationally placed in Shared Services, they partner closely with the logistics function.

A few poll questions were asked to our members to level set what their satisfaction was with their current freight payables process, as well as how it is sourced. While 31% were very satisfied, the majority acknowledged there were some pressing opportunities.

The follow-up question related to sourcing of the processing and 56% indicated it was in-house as part of Accounts Payable, while 40% indicated it was outsourced. Peeriosity members can see the full results and the level of satisfaction correlations between those who are processing in-house versus those who outsource.

The webcast discussion went into detail on the actual process flow of making freight payments. One of the key points made was that optimizing the process requires full partnership with the logistics function. It’s critical that certified carriers are used with negotiated rates that are fully documented. Partnering to include electronic remittances and payments can also make the process more efficient.

Our feature company chose to outsource its freight payment process. In qualifying potential partners, attributes to assess for inclusion in the RFP included:

• Financial security and strength of management.
• Understanding and ability to meet the requirements of a publicly held client.
• Industry expertise – must know freight.
• State of the art technology – Match-pay capability, EDI, client and vendor portals, flexible/robust reporting.
• Ability to integrate growth.
• Reputation for excellent customer service among their clients, as well as carriers.

Since Peeriosity is exclusive to practitioners, many of our members choose to vet potential suppliers with our member base experience. This supplements the supplier-based references with completely independent sources.

Our feature company has had excellent success. The process is extremely stable and is well documented with roles and responsibilities clearly defined, as well as clear decision rights for all parties involved. Some of the results include:

• Higher on-time rates with fewer carrier issues – all in an environment of increased volume.
• Roles are more focused – Logistics manage transportation without follow up of payment or rate issues, Shared Services manages payments (through a third party outsourcer), and together they monitor the process.
• Information for analytics is more robust – better decisions can be made and greater value extracted from carriers.
• Processing costs have been reduced through increased automation.
• Total freight administrative costs have remained level through increased volumes and service levels and better reporting over a 5-year period.

And what about those after-the-fact audits? Our feature company still engages a recovery audit firm, but to the auditors’ chagrin, recoveries have been reduced by approximately 60% even with the increased volumes. The improved process audits invoiced rates to contract rates at the time of pre-processing resulting in an immediate credit made to the carrier invoice prior to disbursement, with communication and explanation provided to the carrier. A greater percentage of the recoveries go back to the company and it’s immediate.

Peeriosity helps you find your way forward by leveraging the knowledge and experience of your peers, quickly.

Have you looked at your freight payables process lately?

Who are your peers and how are you collaborating with them?