Freight Payment: Big of small, speed and service rules
Smaller, niche freight payment companies with emphasis on shipper service and nimble technology are holding fast with industry giants.
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Freight payment billing companies are as essential to shippers as their computers and smart phones. Why? Well, in today’s bewildering world of trucking invoicing, not having a sharp billing service company on your side is like not having a certified accountant in your finance department.
The speed of change now is only exceeded by the rapidity of technological innovation. For example, while an advance like electronic data interchange (EDI) is only 10 years old, it is now considered merely the ante to get in the game.
However, EDI is now being surpassed by sophisticated freight bill payment and invoice receipt validation software; sophisticated communication flow between the shipper, carrier and third-party logistics providers (3PLs); Automated Payment Information (API); acceleration toward the consumption and utilization of data; closed loop payment billing cycles; and advanced analytics.
What does this all mean for shippers? How do you separate the true technological breakthroughs from the trendy conversation starters? In the next few pages, we’ll unwrap four of the latest breakthroughs in the freight payment industry and identify the keepers.
How shippers are now conveying information to companies they do business with and how freight payment companies and carriers are exchanging information back to shippers are key trends to watch, say industry insiders.
And on the way to automation, Regan stresses that shippers need to know the subtle differences between API and EDI. “API is EDI on steroids,” he says. “EDI is an exchange. API is not an exchange, but a constant flow of information in many directions.”
Travis Lachinski, product manager for U.S. Bank, which along with Cass Information Services are the two largest freight payment companies in North America, says that communication flows can be data exchanges, such as EDI, and the main flow of invoices and information.
And the competition to control that flow is fierce. Like Cass, U.S. Bank Freight Payment is huge. It processes around $23 billion in global freight payments annually for some of the world’s largest corporations and government agencies. It also compiles the “U.S. Bank Freight Payment Index,” a regionally granular quarterly index on freight shipping volumes and expenditures on national and six regional levels. Using actual transaction payment data, the freight payment index contains its highest-volume domestic freight modes and is adjusted both seasonally and by the calendar.
“In transportation, there has been a lot of hype about API,” says Lachinski. However, Lachinski is skeptical of how widespread it will become among shippers for actual bill payments to carriers and 3PLs. “It’s being used for tracking in real time, but we’re not seeing much of it in the way of invoices.”
Still, Stifel trucking analyst David Ross wrote recently in a note to investors that API might be the wave of the future to increase transparency and real-time connectivity between shippers, carriers and brokers. “While EDI is not going away, API sure makes a heck of a lot more sense to us in most applications,” states Ross.
“A lot more is being expected by shippers and carriers in terms of visibility,” says Lachinski, adding that shippers need to see not only invoice data, but also any discrepancies. That way, he says, shippers, carriers and the bank can see that in real time in order to address issues. “At the bank we’re always working on them to proactively make changes on future invoices so there are no other discrepancies.”
Using the data
Transportation is awash with information. There’s information about rates, exceptions, additional accessorial charges, discounts and other mountains of data. And due to the fact that shippers and carriers have the ability to exchange and capture information more than ever before, the volume of information is rising exponentially. The issue now is: What to do with all that data?
“Data comes from everywhere today,” says Lachinski. “We have a lot of data within the system, but the real key to picking and choosing the data needed comes from upstream. Start with: What is the problem you’re trying to solve?”
In invoice and payment data, most freight bill payment companies routinely provide data files to customers. But within organizations, which data is most useful to what units? It’s a legitimate question that experts say must be answered.
“We prefer a collaborative approach,” Lachinski says. “We work with different teams. We work with the treasurer on problems with finance, so we can give data solutions there, and then we work with somebody from transportation who may be working on sourcing and may come to us with entirely different data need.”
Because of these changing needs within an organization, some freight bill payment companies are launching new benchmark and consulting services to dive even deeper within companies to solve their transport, finance and billing needs.
Starting in early 2018, for instance, U.S. Bank is using teams it has already set up to launch a consulting organization. Look for other big players within the freight bill payment sector to do the same.
Closed loop billing cycle
Shippers and carriers both want to simplify their payment systems; however, the issue for shippers is how to pay correct bills while keeping an eye on the errors.
Transportation management systems (TMS) are pushing bill-less services that pay carriers before the presentation of the invoice. TMS apps are also pushing the idea that shippers don’t need presentation of actual freight bills because carriers have become so accurate that billing has largely become redundant, the carriers say.
However, freight billing experts believe that if these systems are not set up right, it can be a case of garbage in, garbage out—and that can be costly to shippers. “If YRC says 35% of its shipments involve re-weighs or accessorial charges and you don’t have presentation of accessorial within the time frame, you lose your discount,” says TranzAct’s Regan.
Both Regan and Lachinski say that the solution is really to provide a blend of capabilities so that you have the ability to pay freight after the fact and pay at the time the bill is presented, if billing is accurate. “There are two sides of this issue,” says Lachinski. “Carriers want to get paid faster and shippers want to hang on to their money longer.”
The key is how to maximize cash flow on both sides. Lachinski says it’s not hard to accommodate both sides. In fact, an efficient freight bill payment company can get freight payments to carriers within three days to five days of an approved invoice.
In fact, some banks offer shippers extended-term financing. That means without renegotiating contracts with carriers, shippers can extend payments 30 days to 60 days to maximize cash flow.
“Overall, many finance teams will find value in this,” adds Lachinski. “Freight payments can be a large amount for a shipper as percentage of revenue. Leveraging that can provide good working capital.”
Analytics are being used in nearly every industry—from baseball to bill paying. One trend in transport is the use and development of advanced analytics to better understand a shipper’s freight spend. The idea is to find options on how to better manage freight payments.
The challenge is determining which analytics are the most useful to improving payment. Carriers may be performing everything right 98% of time, but when there’s an error, why did it occur? How often are errors occurring? And, what is the estimated cost each time it occurs?
Analytics can also help shippers understand what needs to be done to eliminate those errors and exceptions. “Just a few years ago, a shipper would take a look at freight payment data and see what already happened,” Lachinski recalls. “Advanced analytics is taking a look at what has happened, putting in other factors and trying to determine what trends are going to happen in the future.”
And shippers are asking freight bill payment companies to do more with their data. The best course of action for savvy shippers: Find the freight payment company that has the right blend of services at the right cost for each set of needs.
About the AuthorJohn D. Schulz John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. John is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis.
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