7 freight audit and payment best practices to boost profit.
Gone are the days of freight companies relying on manual, siloed workflows for their freight audit and payment (FAP) processes. Today’s advanced technology makes more efficient—and profitable—logistics operations possible.
To understand the value of this tech, it’s helpful to reflect on the history of supply chain processes.
The evolution of the supply chain: from the Middle Ages to the connected AI age.
Even as early as the 1500s, the supply chain has been the backbone of the economy.
Centuries ago, there was no choice but to depend on pens, paper, and people to manage supply chain processes. Even in 2024, many companies still operate offline.
The result is that all their knowledge and data is spread across disparate physical documents. This makes it hard for teams and departments to understand and access them.
Other companies have advanced somewhat but still experience major challenges.
The early 2000s saw the emergence of the cloud. which gave companies the ability to manually transfer data from paper documents into a digital system. (In fact, 80% of invoices are still manually keyed in to this day.) Optical character recognition also became an option for full truckload and less-than-truckload.
While this software is an improvement in the manual work aspect, this software led to digitized but disconnected systems that didn’t give teams a holistic view. More often than not, people still have to manually download data from multiple systems into spreadsheets, combine it with other exports, and analyze it.
In other words, our supply chains are operating in 2024, but most technology is stuck in the early 2000s.
This is where artificial intelligence (AI) can be useful to help shippers, 3PLs, and carriers thrive in an evolving industry.
Many freight transportation companies are looking for ways AI can reduce their freight costs and unlock profit. These organizations are embracing advanced technologies to boost efficiency and effectiveness.
Keep reading to learn how freight audit and payment best practices can help you do all of the above.
How does optimizing freight audit and payment boost profits?
When a freight bill moves smoothly from delivery to fulfillment, it saves everyone time and money. Lean and clean operations are the most direct path to uncovering cost-saving opportunities across your transportation network.
Here’s a look at how streamlining your freight audit and payment workflows increases profits:
- Automated freight audits require less time and resources. Without automation, most teams can only spot-check a handful of the invoices they receive. This means a higher risk of costly errors going unnoticed, as each shipment has unique details. Automation is both faster and more accurate, freeing up your team to find ways to save money.
- Accurate audits provide greater visibility into your current network. Accurate audits help you understand your landed costs so you can improve how you allocate your spend. This allows you to prepare for future scenarios, rather than responding to changes or disruptions reactively.
- Finding invoice discrepancies quickly streamlines resolution. Streamlining invoice error resolution opens the door to resolving structural issues. For example, you’ll find errors embedded in your processes that could be contributing to billing mistakes. In addition, invoice error resolution with carriers is backed by data.
- Scheduling payments keeps working capital on hand. Making freight payments at-term means not paying too early or too late. It allows you to retain working capital for as long as you can without risking expensive late-payment fees.
The challenge with optimizing your freight audit and payment processes is ensuring accuracy. Implementing best practices for both operations is critical.
4 freight audit best practices to spot and correct issues quickly.
1. Centralize the shipment data.
Many valuable network insights are hidden in plain sight within your transportation management system, bill of lading, handwritten notes, and more. But, if you’re like most shippers, you probably just check a handful of data points from these sources to validate invoices. If you’re not allocating cost to every line item on an invoice and tracking it, you’re working with incomplete data.
How do you turn this unreliable data into high-quality analytics? Centralization is the first step.
Logistics-AI software ingests data from multiple sources and automates data extraction to start the freight audit process. All so you have one central system for your supply chain and spend data. Intelligent software like Loop also consolidates duplicate data points and automates cost allocation.
2. Automate the audit process.
As mentioned, manual processes are both error-prone and too time-consuming for most freight shippers to keep up with. And, more often than not, hiring a business process outsourcing (BPO) company or a legacy freight audit provider is expensive. It also means relying on someone outside your network to understand its nuances, spot overcharges, and accurately assess invoices.
Logistics-AI let you audit freight invoices instantly in-house. Plus, AI trains on the intricacies of your network data, so its ability to accurately assess freight invoices only gets better over time.
Loop, in particular, uncovers invoice discrepancies and explains why the error occurred. This type of AI solution easily cuts the freight audit process down from days to mere hours.
3. Monitor carrier performance.
Inadequate carrier accountability is a drain on your finances. When auditing freight invoices, also assess performance to verify you’re getting the services agreed to in your contract.
Do they have your correct discount applied? Are deliveries often late, potentially costing you sales and happy customers? Do carriers often incorrectly apply accessorial fees like storage, layover, or fuel surcharges?
Software that offers automatic audit workflows can flag issues like these instantly so you don’t overpay on your freight bills.
Loop even has a carrier report card that documents performance metrics for carrier pickup, delivery, and any miscellaneous accessorials. This information comes in handy when managing or renegotiating carrier agreements.
4. Manage carrier contracts.
To start managing carrier contacts, you need an accurate assessment of your present shipping needs and insight into your network performance. If you understand both, it’ll be easier to negotiate realistic contract terms.
Try the following going into your next freight contract negotiation:
- Consolidate your carrier contract shipments. Instead of spreading your shipments across many carriers, work with a smaller group of transportation providers. A higher shipment volume with each one will give you more bargaining power.
- Forecast future shipping needs. Ideally, you can visualize the next 12 months to give the carrier a realistic expectation of shipment volume.
- Pay invoices at-term. Carriers also need working capital on hand. On-time invoice payments boost your organization’s reputation and maintain a good working relationship with carriers.
All of the above can help you unlock the next level of impactful discounts.
Additionally, good relationships with your carriers streamline the invoicing process. If and when your logistics-AI software spots a mistake, you’ll have an open line of communication to resolve it with the carrier.
At the same time, you need to know when it’s time to shift away from a primary carrier. Trends in your freight analytics data can give you the signal. If a carrier is unwilling to address performance issues or won’t honor new discounts to account for downward trends, it’s time to move on.
3 freight payment best practices that benefit you and carriers.
1. Optimize payment timing.
Paying freight bills too early leaves you with less working capital. Rising interest rates coupled with inflation makes capital more expensive, so keeping this cash on hand is crucial. Yet if you pay late, you’ll get fees and risk damaging carrier relationships.
Payment timing is already difficult, but there’s an added challenge: You probably have different payment terms for each carrier. One contract may require net 30 payment, while another lists net 60.
How do you pay different terms on time every time? Logistics-AI.
For example, Loop ages each invoice automatically based on your contract terms. This automated freight audit and payment workflow means greater financial stability for you and carriers.
2. Digitize freight payments.
Digital payments are flexible, allowing more control over when and how you settle invoices.
For instance, freight payment software like Loop gives you access to financial tools that streamline the payment process. You can fulfill payments at the touch of a button with quick pay. Or you can set the tool to pay invoices a certain number of days after receiving an invoice.
This reduces late-payment risk and gives you greater control over your working capital. As an additional bonus, digital payments reduce the risk of fraud or lost checks, thereby taking another step toward ensuring payment accuracy and security.
3. Leverage AI to surface exceptions.
For most shippers, exception management is a standard part of the FAP process. It includes spotting irregularities, unexpected accessorials, and missing discounts. This is a major lift when done manually, but logistics-AI handles it automatically.
When you couple precise exception management with workflow automation, you’re more likely to uncover costly operational inefficiencies and reduce your freight bill exceptions over time. This is especially true when logistics-AI software integrates with other platforms you use. (It gathers related documents and checks carrier invoices against them for accuracy before you pay.)
Stop overpaying invoices with Loop.
Want to enjoy all the benefits of full control over your transportation network and freight costs? Implement the freight audit and payment best practices above, and use real-time data to unlock cost-saving opportunities.
To improve your operations, consider trying Loop’s logistics-AI software. Get in touch with Loop today for more on how its speed and accuracy can help boost your profitability.
