American Shipper has been analyzing the state of the freight payment industry since 2009 and in that time we’ve shone a light on numerous discrepancies between companies that handle payment of transportation and logistics in a systematic way versus those that handle it more manually.
In this, the seventh version of our annual Transportation Payment Benchmark Study, the focus is on how smaller shippers and LSPs are lagging behind their larger peers when it comes to using payment as a function that drives enterprise excellence. Too often, companies see paying their bills as a chore to be undertaken, not a process from which to extract value. And that’s unfortunate, because the exercise of auditing and paying invoices can provide rich data to an organization, not to mention cost savings.
Large shippers (those with $1 billion or more in revenue) overwhelmingly see freight audit and payment not as a core function for their finance department, but as a key piece of their supply chain picture. As such, they’re more apt to outsource this process, just as they might outsource critical parts of their transportation or logistics network.
There’s a saying in the payment industry: freight payment isn’t like other payables. And for larger shippers that saying rings true more often than for their smaller counterparts.
This report, produced in partnership with the Transportation Intermediaries Association (TIA), the National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA), is based on a benchmark survey of 208 freight payers (shippers and 3PLs), who were asked about their transportation invoice processing and payment practices and systems usage. Participants completed a survey of roughly 25 questions covering all modes of international and domestic freight transportation from July 11-Aug. 29, 2016.
Where Smaller Shippers Lag. Larger shippers view freight payment as a more expansive process than their smaller peers. Across the board, larger shippers include these various components more often than smaller shippers. Most damning: 42 percent more large shippers consider auditing a part of payment than smaller shippers.
Indeed, it’s difficult to understand how some companies don’t view processing and payment, at least, as part of this process.
Managing payment terms is crucial—shippers have to balance the benefits of hanging on to cash longer while not upsetting their relationships with carriers, especially in lanes where capacity might be tight.
Source: American Shipper research
This study found that larger shippers are more than twice as likely as smaller shippers to have payment terms of 30 to 60 days. Conversely, smaller shippers are three times as likely to have to pay within 30 days and five times more likely to have to pay within 15 days. Some of this is simple volume leverage—the carrier’s cost of doing business with an important customer. But some is also due to the fact that larger shippers structure their payment process more strategically.
More than three quarters of larger companies see freight payment as being the responsibility of transportation or logistics, compared to barely half of smaller shippers.
Freight Payment Technology Usage. This report continues to see that shippers vary widely in how they approach the application of technology to their freight payment needs. On an encouraging note, less than a quarter of freight payers are using a purely manual process or no technology at all.
3PLs, meanwhile, are far more likely than shippers to use the freight pay function embedded within their transportation management system (TMS) or a home-grown payment system. 3PLs are also more likely to turn to a FAP vendor that is not a bank.
Shippers, on the other hand, often turn to 3PLs or managed transportation service providers to audit and pay their bills—indeed, that’s the most commonly used method among shippers surveyed. Another 16 percent use their ERP, while 15 percent use some sort of FAP vendor.
Most companies using a system for freight pay and audit either use the same system for both international and domestic freight bills, or use separate systems to handle those two buckets. More than half of respondents indicate their audit and payment provider offers some type of reporting capability, though only about 70 percent of those companies actually use their provider’s reporting tools. Almost 30 percent of respondents use an FAP vendor without reporting capability, though it’s encouraging that only 7 percent have no access at all to such tools.
Eric Johnson is Research Director and IT Editor of American Shipper. He can be reached by email at [email protected].