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Supply chain finance

3 strategies you can implement to conquer freight overpayments

Discover how organizations are embracing innovative approaches to gain more control over their freight spends.

by Durga Pratiha | October 27, 2023 | 5 mins read
3 strategies you can implement to conquer freight overpayments

Discover how organizations are embracing innovative approaches to gain more control over their freight spends.

When it comes to financial transactions, accuracy is paramount. Any discrepancy or overpayment in the freight audit and payments (FAP) process can lead to significant financial losses for organizations. In fact, studies have shown that companies can lose a substantial percentage of their transportation budget due to overpayments. According to industry research, overpayments in freight spend can account for up to 5-10% of an organization's total transportation expenses, which can translate into millions of dollars annually for larger enterprises. 

Many companies have discovered effective strategies to conquer overpayments and streamline their FAP operations. In this blog, we will explore how you can use innovative approaches to ensure accurate payments and reduce cost leakage in your supply chain.  

The challenge of overpayments in FAP 

Freight audit and payments (FAP) is a complex and critical component of logistics. It involves the meticulous verification of carrier invoices, ensuring that the voluminous line items of base freight and accessorial charges align with the rates and services you've negotiated. Unfortunately, overpayments may occur due to incorrect billing, inaccurate data entry, or even because your team forgot all about those hard-earned discounts you've secured. 

These overpayments may seem minor at first, but as time goes on, they can compound and seriously dent your company's profits, so it’s crucial for you to tackle this challenge head-on.  

By adopting innovative solutions, you'll not only save on your freight budgets but also streamline your freight audit and reconciliation processes, making your supply chain management more efficient and cost-effective. 

1. Implementing automated freight auditing systems 

Gone are the days when you manage payments manually! One of the most powerful moves to combat overpayments is implementing automated freight auditing systems. These systems harness the power of artificial intelligence and machine learning algorithms. They cross-reference every detail with your carefully negotiated contracts and tariffs, ensuring everything lines up perfectly. 

What's truly remarkable is their ability to spot even the tiniest of discrepancies. These systems have a keen eye for potential overpayments, and they don't let anything slip through the cracks. If something seems amiss, they'll quickly flag it for further human review. With thousands (and sometimes millions) of invoices to be audited, you can allow the system to do the heavy lifting on 95% of reconciliations so that only 5% outliers need your attention. You can catch discrepancies early in the process (pre-audit) or post payments (post-audit) to ensure you are able to drive significant cost savings. 

2. Avoiding hidden costs by bringing FAP in-house 

Outsourcing FAP processes can be a major contributor to overpayments. When you entrust FAP processes to an outsourcing vendor, there's often a level of separation between your company, your carrier partner and the day-to-day intricacies of freight invoicing aligned to your shipments. While outsourcing can bring efficiency and expertise, it can also introduce a layer of complexity that, if not carefully managed, can lead to loss of quality control, hidden fees, delayed payments (with penalties) all translating to overpayment on your freight bill.  

Technology can play a pivotal role in addressing the challenge of outsourcing freight audit and FAP processes. More specifically, it has the potential to replace outsourcing vendors entirely, offering a more efficient and cost-effective solution.  

  • Intelligent Automation: Seamlessly automate the auditing and processing of invoices powered by AI and ML. This remarkable automation significantly reduces the risk of errors, as it minimizes the need for manual intervention and enhances the accuracy of the FAP process. 
  • Real-time spend visibility: Monitor every step of the audit and payment process to have a real-time view of your freight accruals aligned to shipment costing. You can also leverage insights around your freight spends by carrier, lane or service to manage your freight budgets better 
  • Customized rate configurations: Ensure precise alignment with your unique business requirements, from contractual agreements to rate structures. The ability to capture the freight specific nuances in your rate matrix enhances its effectiveness in error detection. 
  • Scalability: Unlike outsourcing, which may require complex renegotiations as your shipping volume grows, freight audit and payment technology can easily scale to handle higher volumes of invoices without significantly increasing expenses as it’s not a resource-led linear model. 
3. Effective vendor communication to prevent overpayments 

When you and your vendors are on the same page regarding service levels, pricing, and other critical factors, it reduces the chances of misunderstandings or gaps around billing discrepancies. This clarity not only streamlines your logistics processes but also fosters trust between you and your vendors. 

Another crucial element is sharing auditing results. Transparency is vital in this process. By regularly sharing audit findings with your vendors, you create an environment of accountability. This helps identify areas where improvements can be made and, most importantly, prevents overcharges or billing errors from going unnoticed. It's a proactive approach to ensuring you're only paying for what you've received. 

Collaboration is the final piece of the puzzle. When discrepancies do arise, working together with your vendors to address them is vital. Instead of a confrontational approach, aim for a cooperative one. Discuss the issues, identify the root cause, find solutions, and implement changes collectively. This continuous feedback loop not only resolves immediate problems but also strengthens the relationship in the long term. 

Control overpayments in your FAP process for enhanced supply chain efficiency 

Conquering overpayments in freight audit and payments (FAP) should be a critical objective if you aim to optimize your supply chain operations and improve your bottom line. You can achieve this by implementing automated auditing systems, by replacing outsourcing vendors with advanced technology and by having effective vendor communication. These strategies empower you to reduce the risk of overpayments and streamline your FAP processes. 

In an industry where precision and efficiency are paramount, the strategies discussed in this blog will empower you to conquer overpayments and achieve greater control and accuracy in your FAP operations. Embracing these approaches will not only help you save money but also enhance your overall supply chain management capabilities, ultimately leading to increased competitiveness in the market.