According to a report by Armstrong & Associates, the global freight audit and payment market was valued at $3.1 billion in 2019, and is expected to grow at a compound annual growth rate of 6.8% from 2020 to 2027. The report also estimates that North America is the largest freight audit and payment services market, accounting for 42% of the global market in 2019. Another report by ResearchAndMarkets.com estimates that the global freight audit and payment market will reach $4.8 billion by 2024. 

There has yet to be a consensus on the exact size of the U.S. freight bill audit and pay market, although it is without a doubt a significant and growing segment of the logistics industry. As transportation costs continue to rise and supply chains become increasingly complex, the demand for freight audit and payment services will likely grow. 

Errors occur in up to 10% of freight bills, according to the National Shippers Strategic Transportation Council. Most are in the carrier's favor, so it pays to audit each bill. The most common mistakes are incorrect rates and charges, duplicate charges and bills, and unauthorized accessorial charges. An audit will help to eliminate unnecessary labor costs, prevent shipper inaccuracies, eliminate overcharging for detention, and avoid unnecessary accessorials. 

In the early days of the transportation industry, shippers and carriers relied on paper-based documentation and manual processes to manage their transportation. A group of banks, shippers and carriers formed The National Association of Freight Payment Banks to establish the requirement that motor carrier bills be paid within seven days, and rail bills within five. If payment wasn’t made to the carrier on time, the shipper was penalized with cash-basis payments from that time onward, resulting in some large shippers putting their freight on hold.

When deregulation of the transportation industry occurred in the 1980s, things changed. Shippers and carriers were able to negotiate credit terms for more reasonable periods. A few companies emerged in the early 1980s to handle freight bill audits and payments processes. Today, shippers and carriers rely on third-party logistics providers to manage their transportation invoicing and payment. Automated systems and advanced analytics have further helped to streamline the process and improve accuracy, reducing costs and improving efficiency for all parties.

The freight bill audit and pay process involves verifying and reconciling transportation invoices to ensure that they accurately reflect agreed-upon rates and services. The first step is to receive the freight invoice from the carrier and capture the data into a transportation management system (TMS) or other software application.

The next step is to pre-audit the invoice to ensure that it’s valid and accurate. This includes verifying that the rates and charges on the invoice match the contracted rates, checking for any duplicate or erroneous charges, and confirming that the shipment details and supporting documentation (such as bills of lading) are complete and accurate. The audit includes examining all shipping invoices for accurate reporting of shipper, carrier, mileage, shipment weights, bills of lading, tracking numbers, discounts and prices. To avoid duplication, the auditor checks if the invoices have already been processed. If discrepancies are identified during the pre-audit, the auditor will work with the carrier to resolve any disputes and ensure that the invoice is accurate before proceeding to the next step.

Once an invoice is audited and validated, the next step is to approve it for payment. This involves verifying that there are no outstanding disputes or issues with the invoice, and that the carrier is eligible for payment based on the agreed-upon terms and conditions. The approved invoice is then processed for payment by issuing a check or electronically transferring funds to the carrier's bank account.

The final step is to conduct a post-audit and analyze the data to identify trends or issues. This includes reviewing the invoice data to identify opportunities for cost savings or process improvements, and monitoring carrier performance metrics to ensure that it’s meeting service-level agreements.

Freight bill audits and payment services save shippers money by catching invoice errors, avoiding overpayment and managing transportation spend. According to a report by the National Transportation Institute, a comprehensive freight bill audit can save shippers between 2% and 5% of their total transportation costs. This can add up to significant savings for companies that spend millions of dollars on transportation each year.

The amount of money a freight bill auditor recovers can vary, depending on the quality of the data being audited and the auditor's expertise. Freight bill auditors can typically recover between 1% and 5% of transportation costs. Many industry experts suggest that the error recovery rate for a freight bill auditor can be even higher in some instances, mainly when auditing complex transportation networks with multiple carriers and modes of transportation.

There are many factors to consider when choosing the right freight bill audit and payment services partner, including cost of service, expertise of the firm and experience in your industry and level of technology. The partner also needs to understand how your business works, including the specific complexities of your transportation operations. Make sure the company uses technology that includes advanced analytics and reporting capabilities that allow for continuous improvement. Finally, review the partner’s customer service and support capabilities, including its responsiveness and willingness to work with your business. Check references and talk to other customers to ensure that you’ve found the best partner to handle your freight bill audit and payment processes.

Ryan Polakoff is president of Nexterus.