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  • OTLT.USA
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  • OTRI.USA
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    0.1%
  • OTVI.USA
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NewsSponsored Insights

Beating the System

By Thomas Whaley, President, Level One Technologies, Inc.

Sometimes an event takes place that defies the odds. One of these was the subject of a movie titled Hoosiers, that told the true story of a basketball team from a small school in Indiana, that won the 1986 Indiana State championship, by defeating teams from much larger schools, with more talented and experienced players.     

A similar event took place in Lake Placid, New York, during the 1980 Winter Olympics, when the U.S. men’s hockey team, made up of amateur and minor league players, defeated a heavily favored team from the Soviet Union, paving the way for the U.S. team to win the Olympic gold medal.   

For even the most casual observers, these victories were seen as modern-day versions of David slaying Goliath.

For those of you who may have forgotten the story, David was a diminutive warrior who was known to have great courage in battle. However, Goliath was a much larger opponent, and David knew that his courage alone would not be enough to defeat him. To improve his chances, he decided to keep a safe distance from Goliath, that way he would have enough time to carefully aim his slingshot and score a direct hit.     

Although the victories achieved by the basketball and hockey teams are not an exact match to David’s, to prevail over superior competition, each of them needed a unique strategy, to overcome their deficiencies.

David’s plan was less complicated, because even though his opponent had a size advantage, he only had one match up to consider.  But in team sports, there are literally dozens of potential player match ups. That’s why, when upsets occur, they’re usually credited to the team’s coaching staff, whose job is to find ways to supplement the talents of lesser players, so they can compete against more talented ones.

Whenever this outcome occurs in sports, the players are said to have been “coached up”. However, when the same dynamic occurs in other aspects of life, the achievement is often recognized as being “greater than the sum of the parts”. 

This same dynamic played out when I formed a trucking company in 1988, and I decided to use an “outside of the box” strategy to lower the company’s costs, to improve its profitability.  

My plan was to replace as much human activity as possible, with software that was capable of performing the same activities, but at a much lower cost. However, after an extensive market search, I discovered that there were no web-based applications, that would permit me to reach my goal.

With that realization, I had two options. I could abandon my plan or adopt a new approach.  Because I was determined to create more out of less, I revised my approach. Instead of purchasing software, I decided to form a software development team, to build our own applications.

When the team was finally in place, our first project was to develop the transportation industry’s first web-based transportation management system. Two years later, we launched a beta version of that application, that we named Freightlist.com.   

However, despite our best efforts, the application didn’t gain the traction it needed to survive. That was because the companies we were counting on to use the system and generate revenue, decided it was too risky to store their data in the cloud.

That set back was difficult to accept; because a significant portion of the time and money we spent on the system was lost. But the decision had a silver lining, because it made us focus our attention on finding ways to lower the time and cost brokers spend on managing their carrier payables and customer bills. That effort paid off with the launch of a stand-alone carrier payable application in 2008, that we named Epay Manager.

Although it took several years for Epay to gain traction in the market and become profitable, the general consensus among brokers who used it to manage carrier payables was, they wanted it to do more.

Over the next few years, we responded to their requests by introducing two new modules, each of which added significant new functionality to the system. One of those modules was a fully integrated document imaging system, that we have since supplemented with OCR technology, to make it easier for brokers to recognize and classify documents.

The other module was a complete customer billing tool, that is now capable of fully automating the creation and delivery of a broker’s customers’ bills, with matching documentation, at any status of a carrier’s payable.

These additions were of major importance, because they changed the application from a stand-alone carrier payable system, to a complete back-office solution. These additions were followed by many favorable comments, especially from those who recognized the system’s unique ability to save time and money.

But by that time, we were also starting to receive favorable comments regarding our growing reputation as a company that provides excellent training and customer service to the brokers and carriers who use the system.

As an example of our commitment to customer service, during the development period of the new modules, we responded to a growing number of brokers who asked us to find solutions to a new industry trend, in which some brokers were being required to adopt the file transfer methods of their larger customers and carriers. According to the brokers who were using our system, this change was a significant departure from the previous arrangement, where data was transferred using their methods, not their customers or carriers.

To help these brokers conform to the changes, we began developing individual solutions, in the form of custom APIs, to automate the new data exchange requirements of the customers and carriers who were making the requests. Once they were developed, we made the APIs available to any broker member who needed them, free of charge.   

Based on the positive feedback we received from brokers using the APIs, we realized they had made a significant new contribution to the overall efficiency of the system, which by that time, was now approaching $20, in combined process and direct cost savings, for every transaction processed in the system.   

The significance of these savings cannot be overstated. Because with them, brokers have a real opportunity to make their back offices cost neutral, or in some instances turn them into profit centers. To demonstrate this point, let’s look at the impact these savings can have, for a broker who processes and pays 300 transactions per week and generates an equal number of customer bills.  

By reducing a broker’s processing and direct carrier costs by $20 per transaction, over the course of a year, those savings will add $312,000 to the broker’s bottom line, which at a sales multiple of six-times EBITDA, will increase the value of the broker’s business by a minimum $1.87 Million.

Having presented these financial benefits to many brokers over the years, the most frequent question that’s asked is, how does Epay make that possible?  The answer lies in two parts. 

The first is the savings realized by automating the routine human activity that takes place in most broker’s back-offices, a good portion of which can be replaced by automation.

The second is the savings that can be achieved by offering early payment options to carriers and earning discounts whenever those options are selected. To understand how Epay achieves both levels of savings, it’s important to look at the unique design concepts we used to form the core of Epay’s development.  

Unlike other back-office systems, Epay uses the principles of self-invoicing, in a web-based environment, to proactively create and send invoices to carriers, using the highly accurate data that resides in the broker’s management software. By using the same data that was used to create the carrier’s rate agreement, the number of invoicing disputes between brokers and carriers, can be reduced to as low as 1% of all transactions processed in the system.  

When an invoice is created, it’s electronically sent to the carrier for its review and acceptance. Once its accepted, the broker’s staff is notified that it’s ready to be approved, after which the invoice is paid, with an electronic funds transfer from the broker’s bank account to the carriers.

Because Epay is both interactive and electronic, the system is able to achieve an unprecedented level of efficiency and cost savings for the brokers who use it.

One of the leading contributors to this efficiency is the system’s unique back-end design, that allows brokers to store business rules in three separate databases, each of which are referred to as profiles.  The first of these is the member profile, which is used by brokers to create a standard set of rules, that are universally applied to all transactions, for all carriers and customers. 

However, the system is also designed for brokers who need to manage transactions, using specific customer and carrier rules. Epay accomplishes this, by allowing brokers to store special rules, in secondary profiles, that are specific to individual customers and carriers.  

Once all three sets of rules are defined, the broker is able to select and store applicable rules in custom workflows, that are then used to guide matching transactions through the system, using software intelligence, to complete and adhere to all of the broker’s required audit, payment and customer billing functions for those transactions.

Over the years, this process has been shown to reduce the time and cost it takes for brokers to audit and pay their carrier invoices by up to 75%.  And because the customer billing module is fully integrated with Epay’s carrier invoicing and document imaging modules, the system can save brokers up to 99% of their current A/R processing costs.  

But in addition to these savings, brokers who use Epay’s unique early payment module can also reduce their direct carrier spend by up to 1%, by offering early payment options to their carriers in exchange for discounts.

To achieve these savings, brokers are able to create early payment grids, each of which can have multiple, pre-approved payment options, with early payment dates matched to corresponding discounts. Once these grids are created, brokers can assign them to individual or groups of carriers, after which the terms are displayed on each invoice, and can be selected by carriers who need to accelerate their cash flow.

Following the selection and approval of an early payment option, the system then pays each carrier the discounted amount, on the agreed to date, by debiting the broker’s bank account and crediting the carrier’s account.

Although the tangible benefits of Epay are impressive, the system provides other benefits that can enhance a broker’s relationship with its carriers. One of them is the fact that Epay gives carriers payment date certainty, on every invoice they process through the system.  But another attractive feature is the system’s dual view interface, that allows carriers to have a complete view of their invoices at all stages of the broker’s audit and payment process. This feature makes carriers virtually self-sufficient, and it eliminates the need for carriers to call and inquire about the payment status of their invoices.  Over time, these features have helped to explain why brokers who use Epay, have an easier time retaining and attracting carriers.

To further enhance our reputation as a company that supports its members, Level One recently introduced a new early funding program to assist brokers, who lack the financial resources to provide early payment options on their own. Once a broker joins the program, all of its carriers are allowed to select the second day payment option we provide, in exchange for a discount, on any invoice they process in the system.

To initiate the program, brokers must enter into a funding agreement, that requires them to remit the full amount of the invoice to Level One, less any portion of the discount owed to the broker, on the invoice’s original payment date.      

Conclusion:

During the past fifteen years, I had the privilege of working with some of the most talented and hard- working people in the industry, as we attempted to create an entirely new approach to managing a broker’s back office.

During that period, we faced many frustrating moments, as we struggled to find solutions for many aspects of our current system, that previous development teams attempted, but failed to resolve. But in addition to those stressful times, there were also many lighthearted moments that made the journey enjoyable. One of those moments took place at a trade show we attended, to test some preliminary concepts, used in an early version of the system.    

That trip was memorable, because random things began to occur, that always seemed to work out in our favor. One of them happened shortly after we landed, and we went directly to the convention center to see if our booth had arrived.

Because we knew in advance that our set-up time was scheduled for later in the day, we were planning to come back at the appointed time and install the booth. But after confirming the booth’s delivery, we noticed there was no supervisor in sight, so we used that to our advantage to quickly set up the booth. As it turned out, no one was the wiser. That was unexpected win number one.

Unexpected win number two took us equally by surprise.  It occurred when we used the free time, we gained by setting up the booth early, to go out to dinner.  But when we arrived at the restaurant, we were told that our table would not be available for an hour or more. But less than ten minutes after arriving, our name was called, and we were immediately seated. That was unexpected win number two.

For reasons I cannot explain, other “wins” continued happening on the trip, and each one saved us time or money. Clearly there was a pattern going on, but none of us understood it, until one of us realized that we were in a moment, where all of our expectations were being surpassed. It was similar to what happens when a gambler is on a roll, and suddenly gets that invincible feeling that he’s “beating the system” and cannot lose.  From that point forward, the phrase took on a magical quality and was used to describe any beneficial unexpected event.

Now that I’ve told you the story, you’re probably asking why I titled the article, with a phrase that was born out of good fortune and success, when the development I just described, included a great deal of misfortune and failure.     

I did that because the title reminds me that the high level of confidence, I had in myself and our team, was naïve and misplaced. It also reminds me that nothing in life comes easy, and that’s an important message for anyone who aspires to become a software developer. Because if you choose that path, you must be prepared to navigate the long, expensive and frustrating path, often referred to as the five essential stages of software development, for which there are no shortcuts.  

About Thomas Whaley

Thomas Whaley is the President & CEO of Level One Technologies. He has over 29 years of experience in the transportation industry and is committed to helping carriers and third parties form mutually beneficial relationships, by using technology to eliminate structural deficiencies in their customer billing and carrier invoicing and payment processes.

About Level One Technologies

Level One Technologies develops web-based software for the transportation industry. Its flagship application, Epay Manager, is a communication portal that combines software intelligence with document imaging capabilities to proactively create, send and manage a third party’s carrier invoices and its customer billings.

The Epay process is unique.  It begins by importing A/P and A/R data from a third-party’s management software, after which it combines the data with the payer’s business rules that are stored in the system, to create interactive, dual view invoices that it proactively sends to carriers for their review and acceptance. To facilitate this exchange, the system allows carriers to attach documentation, select early payment terms and resolve disputes before accepting the invoice.  Once an invoice is accepted, the system guides it through the payer’s desired workflow to approve and pay the invoice electronically.

When an invoice is approved for payment, the system automatically creates and sends a corresponding invoice, with supporting documentation, to the customer. It then finalizes the transaction’s record by transferring all documents, dates and updated financial information, to the third party’s management software.

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