Recognize your hidden settlement risk

Your exposure may be greater than you think

Logistics settlement risk affects all shippers and logistics providers.

It includes multiple business risks that result from complex logistics settlement processes. Some of the risks affect both parties. Some affect one more than the other.

Here are risks for both parties:

  • Reporting and analytics risk. This risk arises when your corporate systems contain inaccurate logistics data. Bad data distorts management decisions.
  • Governance and audit risk. You may not have adequate controls in place. Or your key controls fail more often than you know.

Additional risks for shippers:

  • Accounting and financial risk. This is the risk that financial and accounting processes don’t work as they should. It may occur because your settlement processes are inefficient or ineffective. Maybe you’re leaving money on the table. Maybe your expenses shift to a later financial period. You may misallocate expenses.
  • Risk of overpayment or underpayment. You may unknowingly pay too much or too little for the logistics services you buy. From an accounting perspective, both variances are equally bad because they indicate poor controls.
  • Regulatory risk. Your company may not comply with the U.S. Sarbanes-Oxley Act and similar legislation in other countries. It applies to public companies that haven’t publicly disclosed their risks and haven’t put adequate controls in place to mitigate them.

Risks for logistics providers:

  • Collections risk. You may not be able to collect full payment for revenue you’ve booked.
  • Risk of disputes in the payment process. When customers dispute your invoices, you have to spend a lot of time, effort, and money to substantiate the charges.
  • Risk of late payments. Your customers delay payment because of settlement disputes. Or maybe they simply can’t process invoices that don’t contain all the information their ERP systems require.

The topic of settlement risk is of special interest to anyone who is accountable for the effectiveness of financial controls. It’s also of interest to anyone concerned that your company may be leaving money on the table. These groups may include:

  • Internal and external auditors
  • Chief financial officers
  • Chief executive officers
  • Corporate audit committees
  • Public accountants.

Directors of logistics or operations may also want to understand the company’s full settlement risk and opportunities to reduce its administrative cost. For shippers, this cost usually includes fees for freight audit and payment services or post-audit processes.

As the topic of settlement risk is more broadly understood, someone else in your company is likely to ask whether you’re doing everything that’s appropriate to manage it.

Trax research has demonstrated that settlement risk is bigger and more widespread than most companies know. In the companies Trax has evaluated, auditors and financial executives often underestimate it.

The controls in companies we’ve studied are not as good as auditors and executives thought. And the controls fail more often than they know. Worse, companies often develop a false sense of security when they use external audit services. Firms that provide freight audit and payment or post-audit services often leave many risks unmanaged.

Shippers and logistics providers can perform an assessment of settlement risk with help from Trax. We’re so confident you’ll find this valuable that we’ll provide a first assessment for free. The process takes only a few hours.

What should I do now?

Discover the Trax Risk Score, a fast and painless way to measure your settlement risk.

Contact Trax for more information.

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