The ultimate guide to automating freight invoice management
The complexity of freight invoice management calls for digital solutions. Learn how to streamline your process and unlock profit with best-in-class tools.
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5 minutes to read
Trying to build a strong freight management process with inaccurate invoices is like building a machine from faulty parts. You have to understand the exact costs and services for a given shipment and verify their accuracy so you can properly plan.
If you don’t, financial operations and compliance suffer.
This article outlines what freight invoices look like, why managing them is so tricky, and step-by-step ways to improve your invoice management process.
What are the common components of a freight invoice?
Within every freight bill, several documents are needed to verify a charge.
These documents come from many places – transportation management systems (TMS), enterprise resource planning systems, freight broker platforms, or carriers’ internal templates.
But no matter the document source or format, every freight invoice should contain the following information.
Basic information
Key identification data lets you validate the shipment and understand its billing requirements.
This basic information includes:
Invoice number: The unique financial identifier for a specific shipment
Bill of lading number: A unique identifier for the shipment contract
Date: The invoice’s date of issue
Parties involved: The shipper (sender), carrier (deliverer), and consignee (recipient) to codify each party’s legal rights and responsibilities and prevent fraud
Shipment details
Accurate freight shipment details ensure that you correctly reconcile payments and assign costs to the correct general ledger codes. They also help you forecast future supply and demand.
Shipment details should include:
Origin and destination: The points where the shipment begins and ends its journey
Lane(s): The path the shipment takes, including any transfer points
Number of packages or pallets: The total number of individual packages in the shipment
Description of goods: A brief description of the shipped items
Weight and dimensions: The total weight and dimensions of your freight shipment
Charges
A comprehensive rundown of costs enables reliable invoice auditing. In sum, you compare the invoiced rate against the expected amount for each shipment to verify accuracy.
Freight charges include:
Freight rate: The base cost per unit (of weight, volume, etc.) for transportation
Accessorial charges: Additional fees for services beyond basic transportation, such as fuel surcharges, detention fees, or special handling
Total charges: The sum of all transportation and accessorial charges
Payment information
Freight bills, of course, contain details on how to settle invoices:
Due date: The date the carrier expects payment for services
Payment terms: The specific conditions for payment, such as discounts for paying early
Payment instructions: Details such as account numbers, payment methods, factoring relationships, and quick pay
Additional information
You may also see the following on a freight bill:
Shipment packet: Supplementary documents such as proof of delivery, lumper receipts, and packing lists
Tracking number: A unique identification for real-time tracking of the shipment’s location
Insurance information: Details of any insurance coverage purchased for the shipment
6 common challenges in managing freight invoices
Manual invoice management is painstaking. To ensure payment accuracy, you want to verify every detail of each invoice. Doing so can take hours – most organizations simply don’t have the time.
More often than not, this forces you to spot-check invoices. This means only verifying a handful of data points.
Alternatively, you may skip checking many invoices altogether. Both options are a recipe for missing issues and overpaying.
Here’s a closer look at the problems you may face when managing freight invoices:
Missing documentation: Incomplete documentation makes it hard to verify rates, accessorials, or terms for each carrier. Without this information, conducting accurate audits is impossible.
Incorrect invoices: Human error and bad data result in incorrect rates, volumes, services, accessorials, and discounts on an invoice. Look out for these common errors when doing your next freight invoice audit:
Incorrect classification: Incorrect application of the pricing structure for shipping as defined by the National Motor Freight Traffic Association for less-than-truckload (LTL) and full-truckload freight (FTL) shipments
Wrong mileage: Incorrect mileage reporting due to data entry or rounding errors
Inaccurate dimensions or weight: Erroneous estimates of weight or shipment size for the units shipped
Misapplied accessorials: Errors in the type of charges applied or failing to apply waived accessorial fees per an individual contract
Relying on manual audits: Manual audits are slow and error-prone. Often, they are just gut checks and almost never review every line item.
Lack of credit management: Carriers often issue credits for overpayments identified by shippers and 3PLs. But tracking these credits can be tricky and they are often missed on future invoices.
Paper-based documentation and payments: Physical documents and checks are a risk. Not only can they become lost or damaged during delivery, but they have to be digitized. Leaving data trapped in physical documents means you’re limiting your insights.
The step-by-step guide to streamlining your freight invoice management with technology
Freight billing is complex, but it’s possible to ease the chaos of unmanaged invoices. You just need a system to enable best-in-class auditing and freight analytics.
A technology-powered workflow relieves the pain points of manual operations. In terms of speed, accuracy, and data insights, it exceeds the capabilities of even high-performing transportation and accounts payable (AP) teams.
A modern freight audit and pay (FA&P) platform ingests contract terms, rate tables, discounts, invoices, receipts, and more. As a result, it streamlines the freight invoice process without granular human control.
You need easy access to proper documentation to validate charges. This means digitizing your paperwork, including everything from printed invoices to handwritten receipts. And collecting all of your already digitized documents: PDF, spreadsheets, electronic data interchange (EDI), and application programming interface (API).
Next, centralize these documents. Logistics-AI can help you extract vital information from any format and store it in one system. That way, you can reference the correct costs, terms, and discounts for every carrier you use during invoice reconciliation.
2. Standardize shipment and carrier data
Centralized shipment and invoice info isn’t useful if it’s full of duplicates, disorganized, or incomplete data. You need a system or software to clean up your freight data so it is usable.
The lack of standard terminology on carrier invoices means you need a way to unify them. You need a system that knows and is able to contextualize and identify all the different way linehaul costs can be written. This enables your transportation team to analyze with a holistic view. Additionally, it allows your accounting teams to understand comprehensive costs.
3. Build an audit process
You need an audit process that looks at every line item so you don’t overpay. Shippers and 3PLs have choices when it comes to running freight audits. Hands down, the most accurate way to catch every issue is with software.
But great freight invoice management is more than finding and resolving issues. It’s about fixing the underlying structural problem. Prioritize processes that help you understand what causes billing errors so you can fix the one-off issue and decrease total issues over time. Doing this expedites freight invoice and payment workflows.
4. Implement an exception resolution process
Speaking of how you resolve and prevent errors, automatic root cause analysis is an indicator of good logistics software. The tool you choose shouldn’t just identify invoice errors. It should also locate the source of the issues so you can resolve them quickly.
Streamlined exception handling using technology eliminates the need for manual research. This stops you from overpaying. Plus, tracking features ensure that credits from error resolutions are correctly applied to carrier invoices.
5. Establish a payment workflow
The traditional approach to payment processing is highly manual and time-consuming. It’s constantly tracking down people and paper for validation. But intelligent software like Loop allows you to simply email your documents to a platform that automates 95% of your audit and pay workflows.
It can then settle carrier invoices via different payment preferences and terms. This speed and accuracy builds great carrier relationships and lets you hold on to more working capital by optimizing when invoices get paid.
The bonus? You can unlock quick pay discounts.
6. Conduct spend analysis
Spend analysis includes consolidating your spend data and assigning appropriate cost codes. Your centralized data repository provides visibility into the biggest freight expenses and allows you to drill down into shipment or product level costs.
With this flexible view, you can look for anomalies and run scenarios to find opportunities to improve your transportation spend.
7. Renegotiate carrier contracts
After implementing the above best practices, you’ll be able to benchmark carrier or 3PL performance. You can look at the performance of an individual carrier or your network across the components of your shipments, such as the shipping volume, lane, and frequency.
Both will give you the knowledge (i.e. leverage) you need to successfully renegotiate contracts and discounts.
Cut costs with better freight invoice management by Loop
For modern businesses driving increasing shipment volume and complexity, technology is the only way to scale invoice management successfully. This is true for shippers and third-party logistics companies alike.
Loop helps both overcome the challenges and cash waste of manual management. With Loop, you can harness a wealth of data to cut freight shipment costs.
Contact Loop today to get on the path to more efficient and profitable freight invoice management.
