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Freight Payment Service

The freight payment industry was actually formed by a series of Banks when the transportation marketplace was heavily regulated. Motor carrier bills had to be paid within 7 days and rail bills needed to be paid within 5 days. To meet this requirement the banking community, shippers, and carriers formed what was known as The National Association of Freight Payment Banks, according to its former Chairman Harold B. Friedman. At that time the emphasis was on settlement of carrier bills within the regulated parameters for credit extension. If settlement was not made, the carrier was required by law to place the shipper on a cash basis. This was not an idle threat and large Fortune 500 companies would often have the freight held because bills were not paid on time.

With Deregulation of the transportation industry in 1980 this began to change. Credit terms could be negotiated between shippers and carriers for more reasonable periods of time. The process has become much more robust with bills being audited before they are paid (pre-audit). This includes: a verification of freight rates for compliance with the customers contracts, checks for previous payment, checks for shipper’s liability and other edits and validations to insure the bills meet the shipper’s requirements for payment.

A freight payment service usually consists of one or more levels of combined services. They may include freight audit, information reporting for logistics, and work with a combination of both Electronic Data Interchange, and paper freight bills. Many companies providing freight payment service are now offering audit for both small parcel and small package carriers, such as FedEx, UPS, and DHL Worldwide. Auditing of these integrated carriers often includes on time performance and claiming of refunds for theses service not delivered within the transit times established for each origin and destination pair. In addition, manifested and shipped transactions are identified for shipments that are entered into the customer’s shipping system but are actually never presented to the carrier for pick up.

The model typically consists of your company having your motor carriers redirect the submission of freight invoices to your freight payment provider. Ideally the provider will have the capability of verifying the origin and destination in a variety of ways, including bill of lading matching, and obtaining a signed proof of delivery. Vendor matching is also another excellent technique for validating the freight bill information a freight payment service receives from the freight carrier. In addition, cost application coding, or general ledger codes. By outsourcing to a freight payment service it believed that the correctness of a freight invoice will be assured, because these services audit for freight rate, freight discount, misapplied accessorial charge, and prevent possible duplication of payment.

The real thrust of the business today is actionable information that shipper receive via the web or create from their vendor’s web site on an ad hoc basis. Sophisticated reporting tools like Cognos11i and others allow Freight Payment Vendors and their customers to easily perform calculations, create graphics, generate pivot tables, and e-mail reports on a scheduled basis.

Many freight payment services now employ web services in their overall strategy to help their customers streamline the way the exchange information, and obtain information reporting.

Most, if not all, freight payment companies require that you issue them a bank wire on their schedule for your company's freight payment needs as reported by the freight payment company. This schedule is referred to as a batch. The freight payment service will then turn around and pay your company's freight bills to the carriers.

It is very important to realize that this traditional model has been in place since the 1920s. It is also important to monitor your freight payment service closely, as many freight payment service companies have been known to misappropriate funds.

To avoid this potential pit fall there are 10 key issues potential users of freight payment that users should address when looking for a freight bill processing vendor, according to Friedman who has been in the industry for over 38 years.

1. Financial security. Does the vendor have audited financial statements, an annual SAS 70 Type II review, and at least a $50-million Employee Dishonesty Bond?

2. Customer service. How does the provider track customer service issues to resolution? Does it use a Customer Relationship Management tool? What types of key performance indicators does it maintain?

3. Carrier relations management. Does the vendor have staff committed to maintaining outstanding carrier relations? Do they visit with carriers to communicate, resolve issues, and create efficiencies that benefit all parties? How do your carriers view the vendor; would they recommend the company?

4. Document imaging. Are hard-copy bills scanned, with images made available on the vendor’s Web site, on DVD or CD?

5. Web-based data access. Web is the prevalent method of presenting data today and the vendor’s site should include standard and ad-hoc reports, drill-downs, a graphics capability, mathematical calculations that result in new fields, client-driven report scheduling, and onscreen and email report delivery.

6. Coding, editing, and validation. How comprehensive is the vendor’s ability in this area? Can it derive cost centers from other data elements? Rules should be table-based and event-driven to ensure that updates are made quickly and easily.

7. Freight liability. How does the vendor determine if the bill should be paid? Does it ensure supporting documentation is attached? Can it perform electronic validations to your bill of lading or purchase order file?

8. Web-based bill repair. Can freight bills that need customer approval be repaired from the vendor’s Web site? Can you easily view images of the freight bill and supporting documentation to resolve bills that are being questioned?

9. Parcel shipment capabilities. Does the vendor have the ability to meet the integrated carrier’s requirements to obtain refunds for late delivery shipments that are manifested but not moved? Does it provide address correction and break down all miscellaneous charges?

10. Ethics. Does the vendor have a code of ethics? Does it tell you what’s good about its service rather than denigrating its competition?

It is thought that by using a freight payment service a company will:

  • Reduce freight spend.
  • Provide better information management.
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