Andrei Radchenko 08.09.2020 9 min read

The complexities of freight-related billing and payment automation

The logistics industry is lagging in the deployment of technology, processes, standards and rules compared to B2C in customer and seller experience. There are many fragmented IT systems, units and processes that are not yet aligned to provide scaling and automation.

An important departmental function is billing and payments. In this blog, we share some of our observations based on work done with various global and local companies in the industry.

 

It is crucial to the service providers to execute billing correctly and timely after the service delivery in order to ensure working capital management. In these uncertain times, payment terms are slipping, and unfortunately, some companies will not be able to pay and even go out of business.

Even though the business relationship must be based on the trust and contract of the parties to carry their responsibilities, service providers include the risk premium of never getting their money despite filling their own part of the contract, e.g., the delivery of the goods from place A to place B.

Simplifying our observations, let’s say we have a shipper and a carrier. The carrier moves the shipper’s goods with their transportation services. They should have a foundation in place, including the following elements/steps:

  • A contract, agreed by both parties, of delivering shipper’s products domestically or cross-border
  • Upon goods delivery, the carrier sends an invoice to the shipper
  • The invoice is validated
  • Information is extracted from the invoice for processing
  • The payment is audited against the services provided for verification
  • Ledger code information is added for accounting purposes
  • The invoice is paid and archived.

These high-level steps help the billing process to run as planned. In real life, many errors can and do occur in billing and payments. The most common discrepancies, e.g., incorrect surcharges, variable elements, fuel pricing documents, and failure to remove waived charges, are mostly due to human error.

Due to the importance of freight billing, outsourcing billing function to service providers is one option for shippers. This used to be the only viable option in the past.

Recently as digitalization has slowly started and is also accelerating in the logistics industry, companies have found success and improved efficiency by deploying some departmental solutions to help with the process elements related to the overall picture.

Companies automating the end to end processes (even though step by step) must naturally rely on deploying data-driven approaches. The data is available in various systems; most probably, it’s fragmented but still available whether inside the company’s internal data stores or business partner’s systems.

By tying all these pertinent data flows, transforming the data to a harmonized format, enriching the billing data from various sources, validating the information, implementing required business rules and matching processes, it is possible to automate the full end to end experience and achieve the benefits of scaling, accuracy, audit trails and eventually genuine automation.

The fragmentation of the IT systems and processes creates a headache for the many players along the freight forwarding value chain who all have their role in getting the shipments delivered from the warehouses to the end customer's front door.

Shipping processes are quite opaque, possibly with as many as up to ten different interactions and as many interdependencies between the time the shipments leave the warehouse until they are delivered to the consumer's front door.

Today, freight business stakeholders use their own industry experience and existing contracts to manage some of these unknown factors when for example, customers are choosing priority services or faster delivery, not to forget customs, surcharges and fees in cross border business. These variables naturally affect costs, billing and payments.

Timeliness of the executed actions and services complicate also the landscape and processes. Settlements, reconciliation and matching of the data and information are critical as well. The overall process cannot be a black hole that requires teams of people to understand, manage and correct the actions; the right technology helps.

Thinking about the payments in the industry; many companies pay by check, some combine their monthly bills to a single payment, some use a sort of subscriptions that are settled regularly, and still, cash also plays a role. These kinds of variations are one of the typical challenges of the long tail in supply chain B2B business and digitalizing it. There are lots of companies in the scope running this planet's logistics and supply chain.

As anyone can imagine, this is big business in monetary value as well. Some analysts stated that the revenues of invoicing-related services reached $170 billion in 2018, correlating with over 1.3 billion freight-related invoices sent withing the ecosystem. These invoices will have to go through the same process from issuing to payment; process automation will create huge savings. You can guess the magnitude of those benefits.

Youredi is privileged to participate as a technology platform service provider in such cases with global scope enabling added value to the whole industry. Schedule an online meeting with our experts to learn more about the solutions we provide for industry, and the benefits companies enjoy working with us.  

 

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Andrei Radchenko

Product Marketing Manager, Youredi