Why 3PLs and Brokers Need To Automate The Freight Invoice Settlement Process
Josh Asbury, HubTran’s VP of 3PL and Broker, wrote this article for MercuryGate. MercuryGate is a tremendous TMS and a wonderful partner for HubTran.
Freight settlement processes are complex, expensive and prone to errors. Gia Glad of Global Trade Magazine states that up to 6% of freight invoices are processed with errors. To reduce the time and expense lost to such errors, modern supply-chain leaders are leveraging technology to automate manual processes in back-office operations. Automating freight settlement processes enables faster, more accurate and more profitable freight settlements.
The Freight Invoice Settlement Process Is Complex
Processing freight invoices is more than matching a bill of lading and invoice to other paperwork. As reported by Glad, “managing invoices is extremely hard as a lot of challenges like reconciling contract terms with Bill Of Lading (BOL), invoices’ rating for correct rate selection, decisions about the acceptance of differences in charges, getting invoices re-submitted after making the carriers do corrections, etc. have to be dealt with extreme care. When these challenges are not addressed properly, they lead to errors, which further lead to overcharging, eventually adding to the overall Invoice Processing complexity.”
The High Labor Cost Of Manual Freight Invoice Settlement
Consider the full picture surrounding a transaction: assessorial charges, peak season surcharges, and after-the-fact assessments may contribute to a higher invoiced amount than initially agreed. In many cases these charges are accurate, but your accounts payable team needs to take time to manually compare the expected invoice amount with the actual invoice amount for each carrier invoice they receive. If assessorial charges are on the invoice, your team must then work with the carrier to get accurate documentation and track these requests with all of the different invoices and carriers they are working with. Once they receive the documentation, they need to upload them to the TMS. All of these touchpoints add days to the invoice settlement process.
On average, a human being can process 75 invoices per day which is roughly 19,000 invoices per year. At a fully-loaded $20 / hour, you would be paying approximately $41,000 to process 19,000 invoices – meaning you are paying $2.16 in labor costs for every invoice you process. If your company is processing 100,000 loads per year, you are paying $216,000 annually in back-office labor costs.
Mistakes Happen When Freight Invoices Are Settled Manually
The inherent complexity of processing freight invoices manually results in mistakes. One of our customers recently told me that before automating their back office with HubTran, they had to routinely rework up to 20% of their loads. Your team might not be making that many mistakes, but rework caused by mistakes is a significant issue that erodes your business.
Freight Invoice Settlement Mistakes Are Expensive
Mistakes cause mistrust when you pay the wrong carrier or transportation factor. Mistakes cause your days-to-cash to increase when your accounts receivable team needs to re-send an invoice to a customer because they originally invoiced them with an incorrect amount or incomplete paperwork. Mistakes cause your customers to be less efficient because they need to double check your work.
All of these errors add up to significant cost to your business. An invoice error rate of 1% applied across $1 million worth of freight invoices quickly adds up to $10,000 in extra expenses. Reworking 5% of your invoices means you are adding 5% to your labor costs because you are paying for the same work twice.
Labor costs aren’t the only casualty of mistakes. Issuing stop payments results in bank charges. Continual mistakes like this may result in you getting less favorable rates from your carriers. Every day you add to the freight settlement process due to mistakes, increases your time to cash – which erodes your margins by effectively giving your customers an interest-free loan.
Automation Creates Faster, More Accurate Freight Settlement
Automating your complex manual freight invoice management process increases your competitiveness as a 3PL or freight broker. Automation allows you to improve your relationships with carriers, decrease your days to cash and reduce the amount you spend on your back office – making your business more profitable.
A typical automated freight invoice settlement process looks like this:
- The carrier emails a freight invoice and supporting documentation to your accounts payable team.
- The automation platform
- Ingests the email and documentation.
- Identifies the carrier, document types, load (or loads.)
- Matches this information to the transportation management system.
- Confirms the carrier provided customer-specific required documents and references.
- Alerts the accounts payable team if anything is missing or doesn’t match what is expected
If everything is accurate and meets customer requirements, the accounts payable team simply needs to settle the load in the TMS. At a minimum, automating this process allows your team to focus on freight invoices that are incorrect and don’t match the freight tender. Humans don’t need to look at an invoice when the automation platform knows that the invoice is correct, the bill of lading has been received, and all of the documents the customer requires have been provided. These invoices can be processed at lightning speed, without mistakes, and without rework.
Automation allows the accounts payable team to spend their time on work that computers can’t do.
Best Practices To Automate The Manual Freight Invoice Settlement Process
Leading 3PLs are definitely investing in technology and software. But freight auditing software and automation technologies alone can’t automate bad processes. Sometimes, 3PLs find themselves less efficient because they deployed the wrong technology or attempted to automate archaic, manual processes. You need to look at your processes and identify what needs to be changed, automated or discarded.
Supply chain leaders and back-office managers can follow these tips to ensure their automation initiatives improve the rate of freight invoice processing:
- Process map your back-office work to identify what can be improved. Understand that you can’t automate a lousy process, and be prepared to change what is broken.
- Track back-office productivity KPIs on a monthly basis to ensure your improvements have the desired effect.
- Talk to your team to understand sources of friction and inefficiency. Document their recommendations and begin the change management process by making them a part of the improvement initiative to automate some of their work.
- Use analytics to identify trends in errors among carriers. Understanding these will help you determine which carriers will require more work from your accounts payable team.
- Set goals. Can you get your payables team from 75 invoices per person per day to 300? Can you shift your receivables team from auditing and fixing customer invoices to focusing on collections and customer satisfaction?
Choose The Right Systems To Automate Your Freight Invoice Settlement Process
The transportation back-office is surprisingly complicated and more time consuming than many companies realize. The back-office “just worked” for years, but in an increasingly competitive supply chain, 3PLs and freight brokerages are striving to turn this critical aspect of their business into a competitive advantage. Automation enables back-office teams to work 4X faster with minimal mistakes.
Freight brokers and 3PLs who automate their back-office work will be more financially competitive, a stronger partner for carriers and more efficient when serving their customer.