The Right Freight Audit and Payment Program Can Save Your Business On Freight Shipping
The definition of ‘Freight Audit’ is the process whereby freight bills are verified and analyzed for the purpose of deep logistical insights and cost savings.
Freight Audit Payment (FAP) is the process used by a freight audit company for the analysis, certification, and correction of inaccuracies in freight bills and invoices.
So, the question is: What can a FAP program do for your business? In order to know which solution might best suit your business, you must understand the basics of how FAP works, which is what we’ll go through in this short tutorial.
Freight auditing involves the careful examination of carrier invoices and is typically provided by a third-party service. Billing errors, incorrectly classified shipments, tariff weight breaks not applied, and other applicable charges that could have been recouped are all thoroughly investigated.
Do you currently have a FAP process? How thorough is your process and what data can you gather from your program? A FAP program can help businesses by preventing over-billing, negotiating future shipping rates, and choosing improved transportation strategies with more efficient carriers.
Anyone involved in the transportation industry understands only too well the complexity of today’s transportation invoicing, including the priceless insights to be gained from the captured data, so they understand just how vitally important it is to have an FAP partner. They also know that carriers in today’s market have all the leverage, continuously pushing peak surcharges, rate increases, and capacity limitations on both small and large shippers.
Having a strong and reliable FAP process is key to the success of your finance and transportation operations because it alleviates invoicing errors and ensures that information obtained from your providers is comprehensive and ready to be leveraged for analytics.
The purpose of a FAP system is to work in conjunction with your current TMS (transportation management system), reducing controllable expenses and optimizing your back-end processes.
How Does The FAP Process Work?
A Freight Audit And Payment system is a process whereby transportation invoices are received, they’re compared against previously negotiated rate agreements, the carrier tariff, or spot rates, then approved as per your client-specific audit arrangements.
It’s very important that shippers have the ability to receive their invoices in a range of formats, such as electronically, given the number of invoices and volume of shipments they’re working with at any given time. Just to ensure duplicate invoices are not being processed, shipment references like invoices and other documentation must be validated against prior loaded transactions. Then, once a duplicate check has been completed, invoice charges need to be matched against the customer rate agreement to ensure that fuel, any discounts, accessorial surcharges, and the base rates and all accurately billed.
The core of the service provided should include automating the audit and receipt touchpoints. The right solution for your business should include systemic alerts to any exceptions introduced, ensuring that ultimately only a small percentage of invoices need to be reviewed by an analyst.
Handling Claims When Errors Have Been Identified
The right audit solution will also consider how claims are handled when mistakes have been identified. Freight audit providers typically act on behalf of the customer and file claims directly with the carrier. Of course this depends on the provider, but some providers file claims post-payment while others make adjustments prior to approving the invoice. This is what distinguishes a post-audit process from a pre-audit process.
Make sure you understand how the provider will work with your carrier. The right solution for your business will reduce the number of corrected or balance-due invoices by presenting adjustments to the carrier prior to payment.
Some shippers offer a more advanced audit solution by providing shipping or manifest data to align with the carrier’s invoice. This matching process is often used to ensure planned shipments are billed as per services requested, to add to the reporting data in your FAP program, and to be a data point for enhancing the shippers’ financial accrual process.
In addition, your FAP system should help you compare services, modes, and carriers by normalizing your invoice charges. It is this normalization of data that will help you to streamline the modeling of your KPIs, while simultaneously giving you the ability to visualize the performance of your carriers, no matter how you received the invoice.
The basic elements required for streamlining the transparency shippers require from their FAP system are normalization and automated, accurate data capture. On completion of the audit validation and based on established financial rules, your FAP process should automatically allocate transportation charges to the correct cost centre or GL. The GL process will be automated by the financial cost allocation, ensuring costs are identified as per the client’s business logic. Depending on the terms stated in each carrier agreement, invoices should age in the FAP process to ensure carrier payments are not made until they are due.
FAP solutions generally manage shippers’ disbursement processes in addition to offering outsourced payment capabilities.
The processing of freight payments can be a painstaking task, requiring the remitting of weekly payments to often hundreds of suppliers. While it’s true there are a range of payment processes, the majority of freight payment providers remit funds to carriers once they have received the total amount to be paid. Some FAP providers have financing solutions whereby payment is remitted prior to receiving client funding. In this area, capabilities vary a lot across providers; however, it’s important that client funds are protected, the FAP provider has controls set in place to control the process, and the solution satisfies the requirements of your business.
Because FAP providers act as a liaison between carriers and shippers, it’s quite critical to the overall success of your business that you employ the services of the right freight audit and payment provider. Your business’s financial processes will be streamlined and simplified when you have a strong and dependable partner who can provide insight into the captured data while supporting your carriers right through the invoicing and payment processes.
One of the biggest costs of doing business can be transportation expenses. It’s a highly volatile market and carriers are continuously introducing rate changes and adding complexity to their pricing arrangements. When there are no controls set in place and no visibility of carrier performance, overpayments will inevitably be made and opportunities to optimize cost will be missed.
Carrier invoicing is usually accurate; however, between one and three percent of spend is billed incorrectly. This may sound like a small percentage, but depending on the size of the shipper this can amount to millions of dollars in annual expense.
The introduction of a complete FAP system and its resulting process automation can result in significant soft savings. Carrier relationships are improved by the support and payment processes, ensuring cash is managed efficiently. Employing a FAP solution gives carriers greater visibility and working relationships are improved by the support provided with their invoicing challenges. When process automation and self-service carrier portals are introduced, carriers receive accurate, on-time payments.
Moreover, the business intelligence gained from captured data during an audit process delivers huge insights into efficiency and cost-saving opportunities.
FAP can supply granular, rich financial and transportation data. By combining business intelligence with an automated payment and audit process, you can have access to the intelligence you need to increase your actionable and visible data. A BI platform that is strong and robust can be an excellent source of optimization and network opportunities along with cost drivers.
The cost savings from data analytics is quite often much greater than generated savings from the audit process.
Why Freight Audit Is So Important
How To Choose The Right FAP Service For Your Business
When choosing between different available FAP solution partners, be mindful of the following considerations:
The look of the support structure;
The way data is presented to the user;
The effectiveness of carrier interactions;
The management of adjustments and claims;
The process of claims filing following an error in invoicing;
The business intelligence and reporting capabilities;
The ability of the system to rate global and other transportation modes.
The key to a successful FAP program is knowing what to look for and the benefits on offer. It’s important that you do your own research on solutions currently available in today’s market, because there are many options available and the capabilities and levels of service vary by provider.
Don’t Put It Off Any Longer – Start with FAP Today!
If you’re ready to implement a FAP into your business, or you have questions you’d like answered, don’t hesitate to contact us at any time. We’re here to help!