Solutions should not be more complicated than the problems they are trying to solve!

Delivering The Freight Bill Audit Function and Utility.  Driving Corporate Performance

 
Executive Summary

A brief note on the selection of the title of this paper -   Given that titles should be terse and recognizably descriptive of the subject matter, no alternative existed but to select the given title, unfortunately we feel it is not sufficiently descriptive.  We could have used the title, Freight Payment Vendor, while also recognizable; it is probably as incomplete as the first.  Combining the two, Freight Audit and Payment Vendor would also be inadequate, and not as accurate.  The most appropriate title, “Freight Bill Management, Shipment Information and Cost Control Portal” is absolutely descriptive and should become universally recognizable and acceptable. 

With that said, we’ll rename this paper - SELECTING A FREIGHT BILL MANAGEMENT, SHIPMENT INFORMATION AND COST CONTROL PORTAL

The audit firm seems to have first appeared sometime in the 1920’s; since its beginning it has continually evolved, most keeping pace with industry’s  needs and some leading the industry with innovative solutions.  During their growth and development they have had different offerings and in some cases even though they called themselves freight audit firms, they were nothing more than “payment houses”.   On the other extreme, some audit firms perform as completely outsourced traffic departments.  In the late 1950’s one of these firms slogans was, “full time traffic department at part time cost”.  

After researching this subject we can fully appreciate why one of our readers asks , “are there any white papers that discuss, “procurement and management of a freight payment and auditing service provider?

This white paper will define the “need”, present a brief history of the “auditing business”; how and why it works; the types of vendors and how to select the type and the services you need that can best address your requirements.  By also addressing the providers’ perspective, there should be a sufficient balance, thereby facilitating the process and providing you with the basis for an accurate decision.

Freight Audit Vendor

By definition an audit is,

An examination of records or financial accounts to check their accuracy.

An adjustment or correction of accounts.

An examined and verified account. ^[1]

A freight audit vendor is therefore one who examines, adjusts and verifies freight bills for accuracy.

History

At the turn of the century most shipments moved by rail, then wagons beyond the rail head.  The rates and charges assessed were based upon the rail tariff structures.  These structures were highly complex, difficult to work with and required specially trained people, called “rate clerks” that could effectively assign freight charges to waybills and quote freight rates to customers for various shipments.  It took years of experience and a great deal of training before one could achieve the title, rate clerk. 

Likewise, shippers required competent traffic department personnel that were also capable of the same tasks as the rail rate clerk and therefore competition for competent personnel in a new and rapidly growing area may have caused some clever person to recognize the need and offer a service.  It wouldn’t be difficult to point out the advantage of such a firm; the ability to assemble specialists in one place and the cost of the service being lower than internal costs by virtue of the fact that there would be a shared overhead.   Perhaps the firm initially offered a post audit service (audit after payment).  As their worth was proved, the business evolved into both pre-audit and post audit services. 

As many of our white papers have indicated, there is a wealth of information contained in and associated with the movement of goods.  Harvesting and presenting this information component, along with the post and pre-audit services, became the principal services offered. 

The early 1980’s seems to be a major turning point when freight audit firms became a small industry.  One of the motivating reasons may be the demise of the freight payment banks.  Many of the newly established firms in the early 80’s presented themselves as freight audit and payment firms, in reality all they did was a perfunctory audit at best, but paid a massive amount of freight bills.  These firms were freight payment houses whose profit was obtained from the float credit. 

Time and events cause change, firms that originally addressed the audit function have become 3PL’s and 4PL’s however, some still provide the audit function. 

Today, technology, business culture, education and deregulation have significantly contributed to the complexity of the offering and the nature of the business and at the same time created a far more intelligent customer; one that understands the motive of the audit firm and how they make their money.  Unfortunately, this description only applies to handful of companies and probably the ones that have been burned by payment failures and process abuse.  

Types of Firms

Today there are several categories of firms:  Freight pre-audit, post audit, pre-audit and payment, and those offering all of these services plus information reporting.

These firms operate as traditional service bureaus, whereby carriers freight bills are forwarded to the audit firm and they audit those bills, accumulate into a batch and forward them onto the customer for further handling.  The post audit firm operates similarly but audits the bills after payment and upon discovery of overcharge claims, they file claim with the carrier and collect a contingency fee.  The pre-audit and payment firm also operate like the previous two, but identifies a total payable, for all carriers and the shipper issues such payment to the audit and payment firm.   Payment to the carriers should be made by the firm within the agreed to time.   The audit, payment and information reporting firm handles the work as in the other cases but also produces some reports, mostly lists that have been accumulated from the input of the freight bill data.

For the most part, all of the types utilize computers to some extent, some for entry and duplicate payment prevention as well as facilitating the reporting requirement.  Nonetheless, this traditional model causes the customer to continually incur administrative costs due to the need for constant intervention.

Customer service at many of the firms is nothing more than handling carrier inquiry to address the dunning calls whereby carriers are looking for payment information.

Issues and Concerns

Payment

Over the recent years, there has been a plethora of payment problems associated with slow and non-payment of carrier freight bills by the traditional model freight audit and payment firms.  Over the last few years several audit and payment firms have been forced to close their doors because of allegations of non-payment of client funds that were designated as carrier payments. 

 

Excessive / Redundant Processing Fees

Another issue that the customer must address with the traditional model vendor is excessive costs due to a constant stream of rejected freight bills by the audit firm, allegedly because of their inability to determine either the validity of the bill, its rates and charges or general ledger codes.   The net result of this problem manifests itself in the audit firm billing one freight bill for each of its processing’s.  In many cases a single bill can be processed and charged for as many as five (5) times.

 

Source Information

In many firms, the service providers perform an audit based upon information supplied by the carrier – the very party whose transactions are being audited.  Shipment rates are generated from a combination of the distance traveled and the space utilized, how then can a proper audit be performed if the auditor is using source data from the carrier? This provides an incomplete audit. 

 

Batch Cycles / Lack of Visibility

Audit firms process freight bills on their own schedules to maximize internal processing efficiencies.  While this enables these firms to drive down their internal costs, it estranges users from their data. 

 

Cash Management

Another area of concern is the customer loss of float credit and their ability to manage their cash.

Dealing with the Concerns

Customers must find an effective selection method so that when choosing a vendor they can select one that they can easily monitor and control or one that they do not have to control or monitor!

The payment issue can be identified early.  Typically carriers will begin to allege slow or non-payment.  Customers should heed this warning and immediately investigate the payment flow details.  In some cases it will be found that carrier error caused the flag and in other cases the discovery will reveal misappropriation or non-payment.  This investigation is both timely and costly.

As we have seen from the above, there is an opportunity for abuse in the traditional model; this does not mean that there are no firms out there that are honest and forthright..  The issue facing the customer is finding them and making sure that they operate and perform correctly without having to spend a significant amount of money for the monitoring and control.  After all, if the justification for engaging an audit firm was cost, it would be foolish to have the liability and the expense; the combination of which would well exceed the internal costs.

In addressing the redundant processing of a single freight bill in order to satisfy exception handling, traditional firms have, by default, stacked the cards against their customers.  In one instance, the repeated processing delays payment to the carrier, thereby alienating this essential business partner.  In another instance, each time this freight bill is processed, it costs the customer an additional transaction fee.  Once a freight bill is presented to the firm, it should be left open (or in suspense) until such time as it can be concluded.  If a freight bill needs to be returned to the customer for approval, the record should be left open so that the person who has the authority to approve the freight bill can do so on both the freight bill and in the application.

With respect to the basic audit, In order to perform a proper and complete audit, a detailed examination of the entire record must occur.  The first examination of information must look to the originator of the source information.  Therefore, a proper audit includes the comparison (ideally electronic) of the bill of lading to the freight bill.  This will confirm that the freight bill represents the correct origin, destination, weight, ship date and commodity that represent true and correct information.  Any audit that does not include this is significantly flawed.

It is important that business partners drive internal efficiencies to keep their overhead low.  These increases in efficiency need to be weighed against your requirement for constant and immediate access to your data.

While the loss of ability to manage your own cash may not be considered an abuse, the traditional model utilizes customer freight funds in their own cash management schemes.  Freight Cash Asset Management represents a significant opportunity for every shipper.

A New Model

The ASP, application service provider, and BPO, business process outsourcing have very recently appeared.  The ASP provides hosted expert systems on the Internet in a highly secure fashion.  The BPO performs similarly but also provides labor for select manual processes. 

Because of the payment issues that have plagued the industry for years, astute companies, primarily new companies with seasoned management have recognized the customer driven need and importance of giving control back to the customer and allowing all customer authorized users’ access to their information 24/7.  This understanding first occurred in the 1960’s and has reappeared; it has value and by converging expert systems with customer capability and customer trained staffs, the power of two (2) has the strength of history and the benefit of the combination of resources.

The ASP/BPO freight audit, payment and management information service provider offers an expert “freight bill management, shipment information and cost control portal” which is hosted on the Internet.  Through a highly secure process, customers and their authorized users have full and complete access to and control of their information 24/7.  Once the customer loads all of their tariffs and rates, most of which can be downloaded or the BPO will supply the entry labor, the system will automatically audit and completely process through shipper managed payment all of the freight bills received.  The data and information are available to the customer 24/7 so they can have information when and how they want it as compared with the traditional model having to wait an inordinate time and pay an additional fee.

Typically, the system will allow for service verification and pre-rating to accommodate prepayment and add routines as well as properly satisfying duplicate payment prevention and an effective audit using the source contract, the Bill of Lading.  This process eliminates the problem of the 50 pound Bill of Lading becoming the 500 pound freight bill.

The ASP/BPO model allows each customer the opportunity to manage their cash.   Freight payment is controlled fully and completely by the customer simply by letting the system know that payment is to be made.  The system can generate a check at the customer site or an electronic payment at the customers’ treasury section.   

The ASP/BPO philosophy absolutely recognizes the talent and intelligence at every customer location; it gives the customer the tools necessary for effective and efficient freight cost control and availability of management information 24/7 so that the customer and the ASP combine their resources achieving process excellence.

As the ASP and BPO models evolve, the industry will have finally come of age, that is their technology and offerings will be understood and appreciated; their success will move them from niche providers to mass providers and costs will be driven down.  Some of these providers have already begun offering a host of services, in an incremental fashion so that the customer need only pay for that which is used.  These additional services/features include, but are not limited to: freight tracing; routing control; and collaboration to their offerings.  There is a natural and logical expansion of services that will occur as the evolution continues. 

Conclusion

It is important for the customer to understand the significant advantage that the “Freight Bill Management, Shipment Information and Cost Control Portal”, offers:

The other clear advantage of this ASP/BPO is their ability to stay in front of the pack; their management is comprised of seasoned professionals, who have sat in the customers’ seat and at the carriers table as well.  Their management composite typically represents all facets of the industry and by spending their time developing highly secure, easy to use systems, it seems like the best choice on balance is to select a vendor from amongst the ASP/BPO providers.

Continuation

Please consider this white paper as a continuum in this subject area, succeeding white papers will address common issues and address them with common solutions. We encourage our readers to direct any specific questions or comments to papers@transportgistics.com.

Disclaimer

The information presented herein represents the opinion of the author(s) but not necessarily the opinion of TransportGistics, Inc. nor is it presented as a legal position or opinion.

All content copyright by TransportGistics, Inc. All rights are reserved. The author(s) of this article retains the copyright to their article. No material may be reproduced electronically or in print without the express written permission from the individual authors and/or TransportGistics, Inc. papers@transportgistics.com

^[1] Excerpted from The American Heritage Dictionary of the English Language, Third Edition Copyright © 1992 by Houghton Mifflin Company. Electronic version licensed from Lernout & Hauspie Speech Products N.V., further reproduction and distribution restricted in accordance with the Copyright Law of the United States. All rights reserved.

Additional Resources

Companies take back control of their freight bill audit and payment processes.

The Freight Audit Function and Utility.  Driving Corporate Performance.

InsourceAudit.com