How much does it really cost to audit and pay a freight bill?
Before companies chose to outsource their freight audit and payment processes, they should know how much it costs them to process internally to help them easily identify the return on investment.
"True cost" of freight bill processing
According to Howard K. Bass, Ashish Garg and T.J. Iijima of Ernst & Young,
The total life cycle costs associated with managing accounts receivable are quite significant in the transportation industry. Depending on the mode of transportation and invoice value, these costs can consume 2%-4% of the total invoice. ... Previous industry-wide studies on accounts receivable management costs have concentrated exclusively on administrative cost aspects and have, therefore, underestimated total life cycle A/R costs. Pure processing costs are significant and are estimated at $3.68 per invoice, regardless of the invoice value. However, implicit financial costs, such as receivable carrying costs, can run three or four times higher than processing costs.
To summarize, this article estimates the "implicit financial costs" to be $11.04 - $14.72 per invoice. Contact CTSI-Global to learn about freight audit and payment opportunities for your company!
>>> View entire article from The Journal of Corporate Accounting & Finance: "What is the 'True Cost' of Processing a Freight Bill?"
"Breakthroughs" and opportunities
According to Aberdeen Group, "The real breakthroughs are emerging from companies creating closed-loop spend management processes. In these programs, efficient and visible freight audit & payment processes help companies:
- Avoid overpayment. Well-run programs ensure the company pays only for the transportation services it receives, in compliance with the freight contract.
- Improve transportation procurement. Creating a closed-loop spend management process requires that the freight payment group can provide reports and up-to-date data in an easily accessible format for spend analysis and bid preparation activity. This can help the company negotiate better rates and more favorable accessorial charges.
- Make beter cost-related business decisions. Companies need to ensure their freight payment system can allocate costs at a granular level (including accessorials) to customers, product family/products, and business units. This information is vital to determine total landed costs, the cost to serve a customer, and so on. Inaccurate freight cost information can trigger a ripple effect of improper decisions in pricing, product investment strategies, distribution network design, and sourcing strategies.
- Curtail maverick spend. A well-run program will rapidly alert the organization to off-plan spend (e.g., shipments not using the preferred carrier, mode, or service level), so preventive action can be taken.
- Improve transportation performance. Mining data on on-time delivery, damages, and so on can alert the logistics and procurement staff to carrier performance issues. Just as important, this information can alert the company to internal or trading partner performance issues such as detention charges for long driver turnaround times at a facility. Freight payment data can also be mined to unveil consolidation and pooling opportunities, more effective use of private fleets, etc.
- Midcourse opportunity identification. Freight payment information can also alert the company about freight spend trends to support a more dynamic procurement process (e.g., increased volume of shipments along a lane making it possible to renegotiate lower rates).
>>> View entire Aberdeen Group report: "Winning Strategies for Transportation Procurement & Payment"