There’s good reason that freight payment is considered to be the brown corrugated box of the supply chain industry. It’s a lackluster topic in a world wrought with regulatory complexities, capacity restrictions, geopolitical challenges, increasing demand, global pandemic and changing consumer behavior. Given these market forces, freight payment typically doesn’t register among the top 10 concerns facing shippers.
That’s not to say that freight payment doesn’t deserve close attention. Carrier invoices are notoriously inaccurate, threatening to disrupt carrier performance and capacity availability if not managed properly.
But just how inaccurate are carrier invoices? Industry analysts put the number at anywhere between 15% and 66%, with one third-party freight auditor reporting that one in four of the invoices it reviews are rejected due to errors. So how do you ensure that freight bills are correct, and carriers paid quickly, to keep the supply chain uninterrupted?
Why Freight Invoices Get Rejected
Rejections have historically been used to drive carrier behavior. It’s entirely appropriate to hold carriers accountable to qualification standards. If a delivery receipt isn’t provided, the invoice should be rejected. But holding the carrier to an invoice validation standard that includes the delivery of additional information, even when such information isn’t consistently provided to it, can be viewed as a subrogation of the shipper accounting process.
None of this suggests that validation standards should be loosened. There’s a difference between a billing mistake that allows for partial payment (such as an incorrect discount) and an outright rejection that results in no payment to the carrier. Issues causing an invoice to be rejected outright — lack of supporting documentation, for example — are rare, accounting for between 1% and 2% of all rejections. Most invoices presented to a freight payment provider do pass the first test: Is this the client’s invoice to pay, and is this an approved carrier? Additional validations, tied to shipper-specific business rules, are where the bulk of rejections occur, and require the most effort to resolve. Therefore, the accuracy of the carrier invoice is heavily dependent on the information the shipper provides. If the carrier has a bill of lading from the shipper, the invoice will only be as accurate as the information on it.
Invoice Rejection Threshold
Generally speaking, invoice rejections shouldn’t be higher than 4% of all invoices received, with 2% as best practice. If your organization’s rejection rate is higher than 4%, it’s likely that the issue at hand isn’t the carrier billing practice as much as it is the rules placed upon the freight audit provider to manage the process. To get invoices paid correctly and quickly, the right information has to be sent to the carrier. Also, shippers need to consider if a business rule has shifted the burden of data collection, accounting, and even end-customer service requirements to the carrier, who is often ill-equipped to resolve these issues. In addition, other forces such as a new contract, renegotiated rates or a new carrier relationship can trigger information and communication lapses that lead to invoice rejection.
The most frequent cause for invoice rejection is incorrect or additional assessorial charges being applied to the invoice. On the carrier side, it should spot check and change core systems when it receives feedback that an invoice audit has led to a rejected invoice to prevent future incidents and delayed payments.
Ultimately, the shipper sets the rules and the carriers know it. Rejections add tension to this dynamic, ultimately tipping the scale in favor of one party at the expense of the other. To reduce invoice rejection rates, freight payment requires solid processes, extensive data capture, rigorous audit and total compliance with the business rules instilled by the shipper client.
Steps to Reduce Invoice Rejection
There are a variety of steps that shippers can take to decrease invoice rejection rates and avoid supply chain disruptions. First, verify the information on the bill of lading including class. It’s common for carriers to handle multiple same-type deliveries, and a default in the system can lead to a mistake in classification. Also, ensure that any time rates change (due to a new lane, location or contract, etc.), validate that the carrier has the right rate base and effective date of the change. Thirdly, audit freight payments — either internally or through a third-party auditor — to make sure you’re monitoring assessorial charges. Some charges that show up on carrier invoices don’t even apply to the goods that are being transported.
Last but certainly not least, embrace the digital future. Data drives everything, and a transportation management system (TMS) enables shipment automation while providing templates with necessary fields for establishing a bill of lading. There are also new avenues to explore, such as shipment visibility, that provide end-to-end confirmation of the move with the accompanying documents. The information and the documentation are combined into a united view of the move, and therefore the invoice.
In addition to, or in lieu of, these new tools, the best protection against supply chain disruption is to allocate the time and resources to resolving rejections proactively. Look at what is being rejected and why. Determine if the right information is transferred to the carrier, and help it understand the importance of that information. Ensure that your employees, suppliers and other stakeholders are following your protocols when using your carrier network.
Avoiding Freight Payment Headaches
With demand at its highest in years, shippers are adjusting to less available capacity at exponentially higher rates. A callback to becoming the “shipper of choice” is gaining renewed importance, shining a light on the value the shipper and its third-party provider bring to the carrier back-office process. Carriers value collaborative efforts that take both parties into account in process design, data requirements and exception resolution. Failure to recognize this shift can prove detrimental.
Invoice rejections are a necessary component of the freight audit process, but they don’t need to be an overwhelming headache. Smart rules, clear directives and planned focus on quick resolution of rejections keeps the financial and physical supply chain uninterrupted.
Roberta Tamburrino is president of freight audit and payment, and Chet Richardson is president of LTL, with AFS Logistics.