History of Freight Bill Auditing

Freight Bill Audit and Freight Payment Service


train 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 to 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. The process has become much more robust with bills being audited by companies like CT Logistics, before they are paid (pre-audit). A typical freight bill audit 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 bill audit, information reporting or business intelligent (BI) reports, and work with a combination of both EDI (Electronic Data Interchange), and paper freight bills.

Most companies providing freight payment service, also offer audits for both small parcel and small package carriers. From 1940 to 1971, these parcel carriers (UPS, FedEx, etc.) acquired "common carrier" rights to deliver packages between all addresses, any customer, private and commercial. Auditing of these integrated carriers often includes on time performance and the claiming of refunds for any services delivery failures. 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.  


A freight bill audit model typically consists of your company having your 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/supplier matching is also another excellent technique for validating the freight bill information a freight payment service receives from the freight carrier. Freight bill audit companies also perform cost application coding, or general ledger coding. 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 charges, and prevent possible duplication of payment.

The real thrust of the business today is actionable information that shippers receive via the web or create from their vendor’s website on an ad hoc basis.  Sophisticated reporting tools allow shippers to easily perform calculations, create graphics, generate pivot tables, and receive e-mailed reports on a scheduled basis.

Most, if not all, freight payment companies require that you issue them a bank wire 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.

This traditional model has been in place since the 1920s. It is important to monitor your freight payment service closely, as a few freight payment service companies have been known to misappropriate funds.

To avoid this potential pit fall there are 10 key issues potential users of freight payment that users should address when looking for a freight bill processing vendor.

  • Financial security. Does the vendor have audited financial statements, an annual SOC Report (SAS 70 Type II review) and at least a $1 Million Employee Dishonesty Bond?
  • Customer service. How does the provider track customer service issues to resolution? What types of key performance indicators does it maintain?
  • Carrier relations management. Does the vendor have staff committed to maintaining outstanding carrier relations? Do they visit with carriers to communicate, resolve issues, and create efficiencies that benefit all parties? How do your carriers view the vendor; would they recommend the company?
  • Document imaging. Are hard-copy bills scanned, with images made available on the vendor’s Web site, on DVD or CD?
  • Web-based data access. The vendor’s online site should include standard and ad-hoc reports, drill-downs, mathematical calculations that result in new fields, client-driven report scheduling and onscreen and email report delivery.
  • Coding, editing, and validation. How comprehensive is the vendor’s ability in this area? Can it derive cost centers from other data elements? Rules should be table-based and event-driven to ensure that updates are made quickly and easily.
  • Freight liability. How does the vendor determine if the bill should be paid? Does it ensure supporting documentation is attached? Can it perform electronic validations to your bill of lading or purchase order file?
  • Web-based bill repair. Can freight bills that need customer approval be repaired from the vendor’s website? Can you easily view images of the freight bill and supporting documentation to resolve bills that are being questioned?
  • Parcel shipment capabilities. Does the vendor have the ability to meet the integrated carrier’s requirements to obtain refunds for late delivery shipments that are manifested but not moved? Does it provide address correction and break down all miscellaneous charges?
  • Ethics. Does the vendor have a code of ethics? Does it tell you what’s good about its service rather than denigrating its competition?