The freight and transportation industry has changed rapidly throughout the past few decades. Keeping up with the rapid globalization of the world requires being more cost-efficient and data-driven than ever, which means rethinking freight operations.
One key part of rethinking freight operations is the outsourcing of various operations, none more important than freight audit and payment. Freight invoices are complex, and as the business grows the complexity of freight audit and payment grows exponentially, it’s harder to accurately track and analyze transportation spend.
Hence, many freight forwarders have begun outsourcing this challenging operation to experts within the field.
- What Does Outsourcing Freight Audit and Payment Mean?
- How Outsourcing Freight Audit & Payment Works
- The Advantages of Outsourcing Your Freight Audit and Payment
- The Disadvantages of Outsourcing Your Freight Audit and Payment
- What to Look for in a Freight Audit and Payment Provider
- Is Outsourcing Freight Audit and Payment Right for You?
What Does Outsourcing Freight Audit and Payment Mean?
Freight audit is the laborious task of checking and verifying freight bills and cross-examining them with their corresponding shipments. After the bills are verified—and adjusted if needed—they’re given to accounting to handle accounts payable, which is essentially freight pay.
Outsourcing freight audit and payment (FAP) means delegating these two tasks to a specialized third party. All bills and shipment details are given to a third party that checks and verifies the bills, and proceeds to payment through a freight payment software.
When you outsource FAP operations to a third party, you entrust the experts to work through burdensome, costly complications that accompany internal freight audits and payments, such as:
- Dealing with multiple carriers with differentiating procedures, costs, and details
- Tackling an insurmountable amount of FAP paperwork
- Devoting various, valuable internal resources to a task that will take a large chunk of their time
- Resolving mistakes, overcharges, and duplicate charges in a timely manner
Outsourcing FAP ensures that your company will have one point of contact rather than a multitude of carriers and/or providers. Plus, as your company grows and freight auditing becomes more complex, you won’t have to incur additional hiring, training, or even overtime costs.
Outsourcing streamlines your operations while cutting the internal paperwork and workload to a minimum. You can then refocus your internal resources and, most importantly, use seasoned experts to optimize your FAP savings along the way.
How Outsourcing Freight Audit & Payment Works
If your company decides to outsource freight audit and payment to specialists, you’ll benefit from a vast array of services, some of which are difficult to perform in-house on a day-to-day basis with limited resources. Third-party FAP providers offer “one-stop-shop” solutions.
The process of outsourcing FAP usually looks something like this:
- Parcel & freight invoices of the last half-year are sent to the third-party freight auditor.
- Bills are verified and cross-checked with the pricing contracts/agreements for errors.
- If an overcharge or discrepancy appears, the auditor files a claim or moves to resolve. Pre-audited (prior to payment) invoices have potential discrepancies resolved prior to payment. Post-audited discrepancies have the third-party provider file a claim for repayment.
- Billing to shippers is aggregated, giving a clear overview of freight spend, while the allocation of costs to individual cost centers is set.
- A check is then provided to the company when the payment is made.
Using a model-specific set of rating rules, freight audit and payment providers remodel carrier contracts into a pricing matrix encompassing rates, surcharges, and alternative surcharges. This allows them to proficiently audit any freight bills, while giving you higher visibility of overall transportation spend.
FAP providers also validate claims while actively identifying possible duplicates—in turn, maintaining accuracy in costs and preventing rebilling costs or validation mistakes. Third-party FAP specialists find and resolve errors, reducing the risk of costly errors or oversights in the payment process.
Third-party freight audit and payment specialists also keep track of changing compliance requirements around the world to ensure shippers are compliant with global rules. A higher level of validation and verification means more certainty that you’re operating up to local, national, and international standards (and a much lower risk of shipments being held up with costly delays).
The Advantages of Outsourcing Your Freight Audit and Payment
Outsourcing various operations has been a cornerstone of the 21st century business landscape, and FAP is no different. Some of the main benefits are:
With a consolidation of contact points, using the expertise of seasoned professionals and relieving valuable internal resources for other important matters, efficiency skyrockets.
Higher Level of Transparency
One of the main issues with internal FAP is the low level of transparency and the higher risk borne by the stakeholders. Through a third party, however, shippers and freight forwarders have full transparency into cost structures and verification processes, and they can get important transportation spend data to support future decision-making. Working with a credible third-party freight auditor also improves your reputation in the industry by providing certainty to other transportation partners that payments will come in accurately and on-time.
Growth Alongside Your Company
With the expertise of a specialized company alongside your own, you unlock rapid growth. Outsourcing freight audit and payment not only gives you a third party’s prowess, but also gives you more freedom to utilize resources toward growth within the market.
When you handle FAP in-house, your auditing team must grow as the business grows, incurring additional expenses to recruit, hire, and train new staff. When outsourced, the third-party provider handles scaling up operations, so you can focus on business priorities instead.
Outsourcing FAP to a third party saves costs in several key areas:
- HR—Outsourcing means you don’t need to hire specialized staff to perform FAP tasks. Saving costs on expert staff for FAP is not limited to salaries, but also recruitment, health insurance, training, and more. And when your institutional knowledge is housed and maintained by a third-party provider, you don’t have to worry about the effect of employee turnover on your in-house expertise.
- IT—Be it a rate management system, accounting system, or other, these costly IT systems require a hefty upfront investment, ongoing costs for maintenance and upgrades, and subscriptions. Outsourcing means you won’t have the building, maintenance, or upgrade costs to get a cutting-edge FAP system. A good FAP partner has the system and expertise in place already.
- Accounting—When accountants must manage FAP alongside regular business accounting needs, there’s a greater risk of errors and burnout. Outsourcing FAP to a third party gives accountants more time to spend on other tasks that help your business.
The COVID-19 pandemic has acted as a harsh reminder that future-proofing and contingency planning are vital to sustaining any business. Those who outsource freight audit and payment are more resilient to potential catastrophes, as the overhead is much lower, and they can adapt quickly to changing circumstances by planning ahead with their partners.
Look for an outsourcing partner that is prepared for your current needs and your future plans. A partner that provides in-depth analytics will help you to understand, analyze, and make informed decisions about your spend and strategy.
The Disadvantages of Outsourcing Your Freight Audit and Payment
Everything comes with pros and cons, but the deciding factor for outsourcing FAP is how those cons are managed and overcome. Here are some of the main issues to watch out for when outsourcing FAP, and the elements that can reduce those cons—and even turn them into pros in the long run.
Trusting a Third Party
One of the main issues of outsourcing is trust. It’s difficult to entrust a third-party organization with vast amounts of data, compliance requirements, and a complicated network of freight costs. To mitigate this risk, look for a solution that makes transparency and data security a high priority. In addition, look for companies that are trusted in the industry, and have worked with transportation situations similar to yours. Testimonials and case studies are a great place to start.
Compliance with Company Rules & Regulations
Finding a partner that can comply with customized company rules and regulations is a difficult task. Many 3PL providers organize their internal structure to adapt to suit any potential client’s needs and regulations. Through a fluid system, the right partner can adapt their offerings to meet your company’s vision, removing this obstacle from the road to prosperity.
Compliance with Global Laws
One of the most vital factors to consider when searching for a third-party FAP provider is their compliance with local and foreign laws. Be sure that any potential provider’s team has taken the time to hone their knowledge of international compliance standards to be able to serve their clients wherever they may be located.
Tech or Product Vision
Innovation is the foundation upon which growth is built. Outsourcing a big part of operations to the right third party won’t hinder your company’s innovation. When considering a FAP provider, search for one that provides you with the latest breakthroughs in freight KPIs, as well as those offering to guide your company toward growth and innovation, creating an unparalleled route towards expansion.
What to Look for in a Freight Audit and Payment Provider
When seeking a FAP provider, there are several vital factors to keep in mind.
The right partner should provide rate management for the services your company offers—such as trucking, LTL, ocean, and/or airfreight. With higher rate visibility comes better spend planning, cost savings, and profit margins.
Rates and claims verification is crucial, and through the right provider, it’s made simple. The partner will help eliminate mistakes and increase accuracy in verification processes.
Flexible master data management framework
Data management aids in present and future operations, providing a clear view of what’s currently going on and what’s to come. With a flexible master data management framework, which is easily integrable and customizable to your needs, you can establish global pricing rules that are visible to all and seamlessly incorporated into FAP.
Third-party freight audit and payment providers can integrate their data management framework with carriers and logistic service providers (LSPs), as well as crucial systems such as ERPs, SAPs, warehouse management systems, and others. The end result delivers a coherent, comprehensive way to view and analyze data.
Look for partners that understand the importance of data management and provide greater visibility into data. This delivers more precise auditing, higher compliance standards, and a more informed vision for the future.
Global managed service capabilities
Also consider the service capabilities of a third-party provider. Simplifying processes and procedures should be a main goal.
There are numerous carriers and LSPs globally, so conglomerating information can be a headache. FAP providers should help you organize the varied global information into a simple structure, while simultaneously defining cost centers. This leads to a clear view of expenditure in a timely and precise manner, allowing you to clearly see exactly where and how money is spent.
The provider should offer their services on the global stage, and yet simplify them enough for you to make well-informed decisions quickly.