Freight Payment Service

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. 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.

Deregulation also ushered in an era of unprecedented competition among providers of transportation services. The market was open and a free-for-all with carriers (transportation service providers) being able to compete based upon price for the first time. Previously, motor carriers had been compelled to set pricing collectively through rate bureaus. This frenzy of discounting presented an opportunity. Per statute at the time, a shipper could collect on an overcharge from a carrier for up to three (3) years after payment of the invoice on which the overcharge was detected. There arose a cottage industry of “post auditors” who were former pricing specialists for major carriers. They would work on a contingency basis whereby they would collect 40-60% of all overcharges recovered by their auditing the last three (3) years of bills (post audit). If they recovered no overcharges, they were not paid.

Eventually, this post audit transformed into a pre-audit where the shipper paid a provider a flat fee per bill for checking the bills for overcharges prior to payment. This pre-audit service became a core value-add process upon which the freight payment process was built. As a note, post audit services are still widely utilized by most large shippers today where detailed freight audits are performed after payments are made.

The pre-audit process has become much more robust with several value added services offered. This includes: a verification of freight rates for compliance with the customer's 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 allow Freight Payment Vendors and their customers to easily perform calculations, create graphics, generate pivot tables, and e-mail reports on a scheduled basis to name just a few capabilities.

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 or an 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.