Should You Outsource Freight Audit and Payment?

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, including how you manage freight audit and payment (FAP).

One key part of rethinking freight operations is the question of whether you should outsource freight audit and payment. Freight invoices are complex, and as the business grows, the complexity of freight audit and payment grows exponentially. It quickly becomes harder to accurately track and analyze transportation spend.

With that said, many freight forwarders have begun outsourcing this challenging operation to freight audit companies and experts within the field.

At Trax, we provide sophisticated freight audit and payment solutions for global enterprises on a journey toward transportation spend management maturity. Make your life easier, reduce risks and errors, and streamline with efficiency: learn more about global freight audit and payment with Trax today .

What Does Outsourcing Freight Audit and Payment Mean?

Freight auditing is the laborious task of checking and verifying freight invoices 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.

Freight auditing doesn't just impact accounting; it extends to virtually everyone in a company’s workflow, from procurement to the finance function.

Outsourcing the freight audit and payment process means delegating these two tasks to a specialist, or a third party company that provides comprehensive freight audit and payment services. All bills and shipment details are given to a third party that checks and verifies the bills and processes to payment through a freight payment and auditing process software, reducing billing errors.

When you consider outsourced freight audit services, you entrust the experts to work through burdensome, costly complications that accompany internal freight audits and payments.

Issues that an outsourced FAP provider could address include the following:

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 freight invoice errors, billing errors, mistakes, overcharges, and duplicate charges in a timely manner
Collecting data across multiple, disparate sources and normaling that data to gain actionable insights

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 invoice 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 Audits & Payment Works

If your company decides to outsource freight invoice audit and payment to specialists, you may 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.

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.

Remodel Carrier Contracts

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.

Validate Claims and Check for Duplicates

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).

Track Compliance Requirements

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:

Increased Efficiency

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.

Outsourced FAP Supports Growth

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.

Outsourced FAP Provides Cost Savings

Outsourcing Freight Audit and Payment (FAP) to a third party offers significant cost savings through various mechanisms:

Invoice Error Detection

A primary benefit of FAP is its ability to catch invoice errors. Professional FAP providers meticulously review freight bills, identifying overcharges, duplicate billings, and incorrect rates. This thorough examination ensures that companies pay only for the services they actually receive, potentially saving substantial amounts.

Route Optimization Insights

FAP services provide valuable data and insights that can lead to route optimization. Through analysis of shipping patterns, carriers used, and associated costs, companies can identify more efficient transportation routes and methods. These optimizations often result in reduced fuel consumption, shorter transit times, and lower overall shipping expenses.

Operational Efficiencies

Outsourcing FAP streamlines operations in several key areas:

HR Cost Reduction: Companies eliminate the need to hire, train, and maintain specialized FAP staff. This saves not only on salaries but also on recruitment, health insurance, and ongoing training costs. Additionally, outsourcing mitigates the risk of losing institutional knowledge due to employee turnover.
IT System Savings: FAP providers come equipped with sophisticated rate management and accounting systems. This eliminates the need for hefty upfront investments in IT infrastructure, ongoing maintenance costs, and regular system upgrades.
Accounting Resource Optimization: Freeing in-house accountants from FAP tasks allows them to focus on core business accounting needs. This reallocation of resources can lead to improved overall financial management and reduced risk of errors or burnout.

By leveraging the expertise and systems of a dedicated FAP provider, companies can achieve comprehensive cost savings while improving the accuracy and efficiency of their freight management processes.

Future Proofing

The COVID-19 pandemic has acted as a harsh reminder that future-proofing and contingency planning are vital to sustaining any business. Leaders who outsource freight audit and payment create resiliency for changing market dynamics, as the overhead is much lower, and they can adapt quickly to changing circumstances by planning ahead with their partners.

Look for an outsourced 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 a deciding factor for outsourcing FAP is how those cons are managed and overcome. Here are some of the main challenges to watch 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 third-party 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 toward 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.

Rate management

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 all 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 who understand the importance of data management and provide greater visibility into data. Seek providers innovating with AI and other advanced technologies in their solutions. These partners should offer tools delivering more precise auditing, higher compliance standards, and a more informed vision for the future. AI-powered data management solutions can enhance automation, improve data quality, and provide sophisticated analytics capabilities. This approach streamlines compliance processes and unlocks new insights for data-driven decision-making. Partnering with forward-thinking providers integrating cutting-edge technologies like machine learning, natural language processing, and predictive analytics can significantly boost an organization's ability to handle complex data landscapes efficiently and effectively.

Global managed service capabilities

Also consider the service capabilities of a third-party FAP 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.

Is Outsourcing Freight Audit and Payment Right for You?

Outsourcing freight audit and payment can lead to exceptional results, saving costs, optimizing resources, driving growth, and improving operations.

Large companies that outsource FAP boost their bottom line, while maintaining—and expanding—their market share. Small- to medium-sized companies that outsource freight audit and payment get the chance to refocus their resources on growth and innovation.

To learn more about the Trax approach to freight audit services and its Total TSM™, contact us today.