Freight Payment vs. Freight Settlement

On the surface, freight payment and freight settlement are the same thing, which is correct in many ways. An invoice is received, and payment is made. They differ in the process of validation, ensuring correctness, and the promptness of payment. 

The global supply chain's pace is substantially faster than just a few short years ago. Goods are being handed off between different modes of transportation at a lightning-fast pace, creating a complex web of freight invoices and payment schedules and putting a premium on efficiency.

Audits are essential to the equation, as billing and invoices account for as much as 7% of carrier expenses. New technology like freight audit and payment (FAP) systems are streamlining the process and making it easier for companies to ensure accurate, on-time payments to keep goods moving and customers happy.

Trax is a leader in transportation management and technology. With a suite of business intelligence tools, we can help simplify complex challenges of the freight audit process, resulting in reduced costs and better vendor relationships.

Freight Payment: Post-Auditing Process

Freight payment and post-auditing, in many ways, have been the status quo for decades. Invoices are submitted and, in turn, paid without first being reviewed. The fact is that until recently, inserting an audit into the middle of the process would cost a substantial amount of time and money and ultimately delay the movement of goods.

With a post-auditing process, audits occur on the backend well after the initial payment. This creates a time-consuming back-and-forth process between the carriers and shippers as they work to reconcile any discrepancies.

Even the most diligent accounts receivable teams will make clerical errors. Contracts will vary between shippers, rates constantly change, and duplicate bills are everywhere, making it challenging to get every invoice right.

At scale, a post-audit process becomes increasingly more complex, requiring additional human resources to avoid processing delays. Even with the right people in place, they, too, are prone to human error. Over time, even the most minor missed discrepancies compound resulting in reduced revenue.

Freight Settlement: Streamlined Approach

Where post-auditing is cumbersome, error-prone, and costly, freight settlement is streamlined, efficient, and chock full of ROI. Implementing machine learning into the freight invoice audit process allows real-time analysis of every freight invoice and transaction and actively monitors contracts and rates.

Modern FAP systems are injected directly between invoicing and settlement and operate through three steps.

Stage 1: The Settle Up

Like other pieces of technology, FAP systems need a baseline of understanding to make the process work. This means that agreed-upon contract rates between shippers and carriers are directly added to the system. From there, the artificial intelligence (AI) has a point of reference and can quickly diagnose errors when an invoice is received.

When leveraging technology, preparation isn’t limited to the front end of the audit process. Auto-payment systems eliminate unnecessary delays in settlement and provide visibility to where every dollar is going.

Stage 2: Planning the Variables

The challenge with any audit process is the constantly shifting variables that are a certainty when working within the supply chain. Service costs, rate fluctuations, and more all add additional layers of complexity to the process making it difficult to pin down every single invoicing error promptly.

With a freight settlement process, these variables are accounted for by AI. The tool constantly monitors rate changes and market demands to quickly and accurately diagnose potential errors. A live team member can quickly review Red flags without delaying the process.

Stage 3: Info Central

Once the building blocks are in place, data becomes the focal point of the payment process. Proof of delivery triggers automatic payments that are accurate, removing the need to reconcile errors weeks or even months after the payment has been made.

As systems are integrated, data can be quickly aggregated, allowing organizations to more easily scale their operations, enter new markets, and improve carrier relationships. The added transparency and visibility of comprehensive data streamline the process, allowing for fast payments and efficient business operations.

Which Is Right For Your Organization?

There is no denying that freight billing and payment audits are an essential part of the process; the question becomes when the audit takes place within the payment timeline. Post-auditing is an established process, but your team must also scale as the global supply chain becomes more complex and organizations scale.

Training delays, additional overhead, and the constant challenge of human error make this a less-than-ideal option, especially for organizations that are rapidly expanding their operations or are looking to reduce operational costs.

Before-the-fact payment accompanying freight settlement reduces the processing friction, leading to cost savings and efficiency. This is only made possible through comprehensive, accurate data. Where freight payment relies on third-party data and invoices, freight settlement aggregates information to ensure the entire payment process.

Improve Freight Settlement With FAP Technology

As more technology is introduced into the supply chain, the need for integrated systems that can quickly and accurately improve the carrier payment process becomes essential to keep goods moving. Freight settlement can scale your business, improve your carrier relationships, and improve your organization’s bottom line. 

Over the next five years, these tools will continue to evolve and improve. The earlier you can integrate an FAP system into your business process, the easier it will be to access accurate data and make more informed decisions.

Trax’s freight audit and payment system is designed to simplify global enterprises' complex challenges. We are dedicated to advancing the technology and improving how shippers and carriers interact.

To learn more about our FAP tools, visit our website and schedule a consultation to see how we are changing how freight audits are conducted.