The costs for a shipper to develop an in-house freight auditing system are generally prohibitive. And since the service fees to outsource are typically a lot less than the savings that result, few shippers are motivated to make the investment in an internal audit system. The new software applications may be changing this equation.
What should shippers look for in auditing and payment software? First, it’s important to know the problems that shippers are trying to solve with pre-payment freight bill auditing systems. Then we can itemize the key functions in their existing service contracts with audit companies. These are the benchmarks to look for in audit and payment software.
Freight Auditing and Payment Services Explained
The business case is well established for freight shippers to use service companies that specialize in freight auditing and payment, as intermediaries between themselves and their carriers. The cost is prohibitive to do this in-house, and the value of auditing is proven, even with the cost of outsourcing.
For many companies that ship products, their expert knowledge stops at the shipping door. This makes sense. Companies specialize in what they do, and staff their operations accordingly. It's not part of the business model to become experts in auditing freight and parcel invoices.
However, it's commonplace for carriers to make mistakes, or simply to fail to apply the most beneficial rates to a shipment. Discounts and base rates are not applied when they could be. Minimums, fuel charges and accessorial charges are often incorrect. Charges for guaranteed delivery are not waived when a shipment is late. Worst of all, it's easy for duplicate invoices to enter the picture – and to be paid, if the shipper isn't on top of the situation.
The gains realized from correcting these mistakes, or simply from optimizing best value carriers, translate into real money. But the benefits reach far beyond the money savings. The data captured from the audit process opens a world of business decision-making potential.
Shippers themselves make mistakes, too, and commonly choose more costly options simply from a lack of data regarding optimum routes, carriers, rates and shipping methods. Shippers use an LTL carrier when parcel service might have worked, or pay premium charges when time allows for cheaper options. A direct route with a different carrier might serve a need, but the shipper has no dashboard view of the options.
Expertise with all these elements rests in the audit and payment service companies, and for a long time they have often been the only source of actionable reporting for freight shippers, providing the sole view of overall freight spending. It makes sense that their software tools are now being offered to enlarge this view, enabling all shippers to take the cream of this expertise in-house.
Functions to Look For In Freight Auditing and Payment Software
For freight and parcel shippers, the measure of the right auditing and payment software is how well it emulates the services of the successful auditing and payment service companies. To begin to replicate the services provided by companies, software must offer the following capabilities.
Create Payments. For many shippers, keeping their money management under their own control is the principal reason for in-house auditing. Software should be able to age invoices according to agreed terms, and produce vetted invoices ready for payment by the shipper.
General Ledger. All the elements of a shipment must be allocated to the correct department and accounting category (increasingly complex with overseas transactions). Software must automatically assign GL codes defined by the shipper, and should be able to assign multiple codes to an item.
Electronic Data Interchange (EDI) Capability. Paper and redundant effort is eliminated by electronic invoicing directly from the carrier's billing department to the shipper's computer, flowing in a standard format. Large volumes of data can be transferred and processed reliably without human intervention.
Auto-Rating. Software must be able to audit invoices at the level of each line item, distinguishing between consolidated and single-item shipments, comparing the billed rates with the contracted rates, and adjusting and flagging for review as appropriate.
Manifest Matching. Comparing the shipper's internal shipment details such as weight, size, special coding, etc., with the invoice details optimizes the quality of the audit.
Reporting & Analysis. One of the key benefits of auditing is the analysis that’s made possible. The software should have user-friendly reporting functions. Trend analysis and graphing is obviously important. Look for granularity, being able to break out accessorial charges, individual products, stop-offs and as many data elements as possible. Be able to "slice" your data by customer and vendor, shipping lane and carrier – these are crucial requirements for rate negotiations.
Ease of Deployment. Any software has to work within the existing IT structure of an organization. How well can you integrate with your existing systems architecture? Look for technical support from the developer in this regard.
Stable Developer. Shippers will invest time, personnel and money in auditing and payment software. It's important that the software developer not go out of business anytime soon. Look for developers among the service companies themselves, and pre-evaluate the software on the developer's reputation and longevity as a service provider. The software is a subset of the service company's main system, and will continue to evolve over time as the service companies evolve their own internal systems to track more data and produce more report sets.
Finally, remember the high-altitude view. Why are you getting the software? What problem is it solving? Look for features that will solve your problem.
And consider the tasks handled by the software: how do they fit within your current systems? What about people? Who will specialize in implementing and maintaining the software, updating external rates and internal analysis and coding? How much time will be required to operate the system?
One advantage to software developed by a service company is the opportunity to explore the service offering itself. The partnership between shipper and audit company has grown over time to embrace multiple functions, especially with international shipments and the complexities of trade compliance. A mix of in-house and outsource may provide the greatest cost-effectiveness for your supply chain.
Benefits of Pre-Payment Freight Auditing
Perhaps the biggest features of the new software for shippers to look for are views of options and costs. These are the reporting tools that freight shippers have enjoyed for decades using service companies. Company survival nowadays demands capture and analysis of more and more data. As pressures mount to lean the supply chain and find cost efficiencies in transportation, data is money.
Shippers who don't audit their shipments typically can only perform analysis after bills have been paid. But it’s much easier to correct a wrong invoice before payment is made rather than after. And it’s better to correct a single problem before it repeats many times, or grows uncorrected into higher costs. Pre-payment auditing is what makes the difference.
Knowing the true landed cost of shipments before goods are shipped also means shippers can negotiate a discounted rate with carriers based on projected annual shipments – one of the key services provided by the audit companies. Detailed coding means costs and revenues are properly assigned to departments and accounting categories.
Freight auditing captures hundreds of distinct data elements for analysis. The complexity grows larger with international deliveries, with factors to include such as customs duties, taxes and licenses, as well as currencies and units of measurement. Audit companies are the principal driver unifying these different data elements into standardized analysis and report formats.
Shippers benefit from this “normalization” of data in many ways. As shippers and shipments grow due to acquisition of other companies and units, different data formats from branch operations can be standardized for better efficiency and control.
Improved data analysis allows shippers to know which carriers and lanes best favor their expansion plans, and can shape their supply chain proactively.
As shippers reap the benefits of data capture through ever-improving auditing, carriers themselves endorse the trend too. Greater efficiencies mean faster and often automated payments, mutually beneficial partnerships with shippers, and better planning throughout the entire supply chain.
Carriers, led in the U.S. by FedEx and UPS, are producing more detailed invoices, “surfacing” the data for capture by software and systems. In the globalized trade world, these standards and expectations are growing worldwide, offering new opportunities for freight shippers.
Over the years, freight auditing and payment service companies have evolved many of their relationships with their customers into the role of management advisor. Globalization has upped the ante significantly, and audit companies now factor trade compliance regulations into their purview.
The trickle-down of service company expertise into software that freight and parcel shippers can deploy in-house offers an exciting future for shippers who have not previously wanted to outsource auditing or payment. Everyone benefits from smarter supply chains.
Source: National Traffic Service
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