Commentary: To outsource, or not to outsource freight payment auditing?

Shippers who don’t audit their freight invoices prior to paying them are throwing money away and losing the benefit of data analysis, according to Garry Oswald, VP of Sales & Marketing at National Traffic Service.    Freight bill auditing is a proven method of paring the cost of freight and parcel shipping to the minimum. Freight auditing typically delivers cost reductions far greater than the cost to implement auditing – positive ROI is its hallmark.
   The only question is how best to implement auditing: outsourced or in-house? And if in-house, should a shipper use a manual system, a self-developed automated system, or external software integrated into the shipping process? Which of the three methods will cost the least to produce the greatest gain?

Why Audit?
   Since carriers, shippers and payment departments can all make mistakes, auditing the process is crucial to a company’s bottom line. The best time to correct a faulty or duplicate carrier invoice is before it gets paid, and before a faulty procedure repeats or grows worse. 
   Pre-payment freight auditing reduces shipping charges and saves administrative costs with vetted invoices ready for payment. The additional benefit is the business intelligence for company management delivered by the capture of as many as 150 data elements.
   Audits examine such elements as product classifications, discounts and rates, fuel and other accessorial charges, math errors, and late deliveries, as well as validating general ledger and department coding. The data captured allows analysis across multiple views of the shipping operation. Shippers can negotiate better rates with carriers and make better choices of carrier and lane for each item shipped.

Outsourcing freight auditing
   Studies calculate that for most shippers the internal processing costs of freight auditing average about 10 times the cost of outsourcing. This is why at least half of all U.S. shippers currently outsource freight auditing and payment.
   Freight auditing is a complex task that requires significant resources to perform in-house. The audit industry, over its more than 60 years of working with shippers, has pioneered the data capture and analysis that shippers now rely on for an overall view of freight spending that they can’t easily create themselves.
   The fees to outsource are typically surpassed by the cash savings generated from optimizing and correcting freight and parcel invoices.

In-house freight auditing
   Some shippers prefer not to pay an outsource fee, or want to maintain control over their account coding, or to handle their own payments and not transfer funds to an outside service company. There are 3 ways they can develop their own auditing process in-house.
   1.) Manual freight auditing
   This requires considerable staff expertise with carrier base rates and discounts, fuel and accessorial charges, mileage variables, late-delivery adjustments, and all factors relevant to the optimized invoice. Considerable time investment is required not only to do the auditing but also to stay updated with carrier information and changes.
   A manual system of freight auditing is better than no auditing at all, but it’s not a system a shipper would nowadays choose because it’s cumbersome and unlikely to capture all the data useful for analysis.
   2.) Creating freight auditing software
   Shippers who want to automate their manual system, or build software from scratch, need strong in-house IT capability that they can marry successfully with shipping expertise. Extremely large companies have the capital and human resources to do this, but it can be a challenge for smaller or mid-sized businesses.
   For starters, the homegrown software must have EDI capability to receive electronic invoices from carriers. The IT department must also build a rating engine that can apply all carrier variables automatically to each line item. Likewise required is detailed coding to assign costs and revenues to the correct departments, customers and categories. 
   Payment can be incorporated as part of the automation or kept separate. Staff is still required for human review and to update the frequent carrier information changes and software.
   3.) Purchasing freight auditing software
   Some freight audit and payment providers in recent years have developed software for shippers to use in-house. This provides a turnkey automated system containing both the industry’s auditing expertise and the IT capability for rapid electronic processing. 
   The software accommodates EDI invoicing and offers automatic rating of invoices, automated payments, custom coding for general ledger reconciliation, and analysis similar to the outsourced service. Typically the software developer assists with IT integration. All the shipper needs is a team to manage and update the software, as well as analyze the data captured.

   Shippers who don’t audit their freight and parcel invoices prior to paying them are throwing money away and losing the benefit of data analysis. The old choice of either outsourcing this function or facing daunting in-house alternatives is now expanded by new software that allows practically any shipper to bring automatic auditing in-house and still retain coding and payment control.

   Garry Oswald is Vice President of Sales & Marketing for National Traffic Service, a freight auditing, payment and information processing company headquartered in Amherst, NY.
   Garry has an MBA in Marketing from Canisius College in Buffalo. He has more than 35 years of sales and marketing experience and has been National Traffic Service’s sales and marketing manager since 1992. Since then, the company has expanded from a regional organization to one with a client base of Fortune 500 companies throughout the United States and Canada.