Freight Audit & Payment: Money Leakage Or Just On Budget?

Nothing has shaken the logistics industry as much as Covid – thoroughly planned, well-calculated and presented budgets were simply blown away in the blink of an eye. It was a difficult lesson, but still, it really helped refine internal processes and carefully the money left in the company’s pocket. What’s behind the scenes, however, of getting your goods on time, in full, in a cost-effective way as a shipper? Precisely, it is the right process and technology to support your own Freight Audit & Payment capabilities.

Now, it is fair to say that suppliers are looking forward to getting paid, and this is part of the process to build a good relationship with your partners. From a process point of view, it is essential to build a structured route: roles and responsibilities (externally, internally), exhaustive granularity on cost elements with necessary proofs (i.e., demurrage, detention, any non-negotiated costs), and precise actions to be completed. Yet, current contracts include complex costing schemes to cover different cases and remain competitive enough in the current landscape. One may be wondering: How long does it take for a shipper to qualitatively check the content of invoiced elements? Short answer: not more than 15 minutes and longer, maybe a few days, even a week or two, while digging into the tariffs agreed upon, waiting for proof or negotiating discounts with suppliers. Usually, the guys operating the freight are the ones assigned to validate the right costing that appears on invoices, and you can simply imagine priorities always vary at a given moment: get the shipping done or get the costing right.

What I am truly confident about is that here is the role of technology to support, nowadays booming more than ever with its unique capabilities, automation, reporting and analytics, artificial intelligence (AI), etc. 

Automated freight audit and payment solutions can offer operational staff huge ease of invoice check and unlock time for more added-value activities than checking invoice lines manually. Technology provides already good solutions to store negotiated rates, identify differences with the newly presented costs by suppliers and evidently alert of discrepancies. It can even identify potential errors before an invoice reaches the shipper’s desk. Obviously, a pre-defined and mutually agreed system (by shipper, forwarder) of costing models shall be established so that software can do its job well. The best is always to live in a seamless world where the system collects, analyzes and pays, yet rate discrepancy means immediate alert and immediate action - on the shipper’s side to confirm or reject the spend, on the forwarder's side to get paid. I always like to say what a man can do, what a system cannot, and what a system can do; man will usually take triple the time to accomplish. And those guys working in the fast-paced world of logistics wo no longer do admin jobs and bury themselves in the little details, but they will quickly see what to focus on. On the other hand, I have seen cases where people rely too much on technology in practice, and that’s not good either. Software is not human; it only points out obvious differences, but it can’t assess if additional surcharge coming from the Red Sea crisis or EU ETS surcharge, for example, are good to go for payment. Strong internal process capabilities or potentially externalized service from experts in the field is always a must-have in FAP.

"A structured freight audit and payment system streamlines processes, improves financial health, and contributes to a more competitive, data-based and responsive supply chain"

Another level of reflection obviously comes with the question: what do you do after you gather data and see the figures? From a shipper’s perspective, the essential worth of FAP is not only in simple data but also the possibility to make well-considered decisions. Giving a cost to serve on a customer level to commercial guys can lead to service re-evaluation, new conditioning and margin improvement. Providing data on what is to come soon for payment sheds light on the finance tunnel. Analyzing the option to cut the invoice number by two and, thus, operations effort, checks, and analysis by giving the end-to-end flow to the same forwarder brings efficiency. Playing with expected freight cost numbers can also help with different scenario development and healthy budget adherence. And finally – obviously, the outcome of the FAP process is an important component of suppliers’ business review; it becomes a strong tool in procurement hands.

In conclusion, a structured freight audit and payment system streamlines processes, improves financial health, and contributes to a more competitive, data-based and responsive supply chain. Securing strong FAP capabilities is a beacon of efficiency with many internal benefits behind it. FAP is also a prerequisite for transparent, smooth and collaborative relationships with logistics partners. Numerous opportunities may be revealed with FAP as soon as these conditions are met: strong governance, automation solution and data outcome used for decision-making. FAP is an inseparable part of logistics activities.