Freight payment, the mere words create emotions of anguish, boredom and resignation. (Note the words “freight claims” has the same emotions, that is another post.)
Yes, you know it needs to be done. You rather be spending your time solving organizational and customer service supply chain problems. But if freight payment is not accomplished, there is no movement in the supply chain, maybe not immediately but soon enough. Lets take a 30,000 feet view of the process and then get down to some details. Yes, I know you rather not.
There are a lot of words being written these days about being carrier friendly by shippers to improve costs. Relatively few of these talk about the importance of freight payment to the carrier, but it is of high importance even bigger than dock delays. From the carrier’s perspective, the unpaid bills are inventory sitting around doing nothing, costing capital waiting for something to happen from the carriers point of view. For small carriers, who are hand to month in their cash flow, slow payment can be particularly deadly to their operation.
From the shipper’s point of view, it means the outflow of cash, of particular interest to your CFO, who rather not spend it. Here having an inventory of cash is rather cool and looks good. The shipping company does not make its profit paying freight bills, so it is something it rather ignore. Making matters worst because there re unexpected events happening in transit leading to additional cost, such as delays, customs costs, unloading charges, etc., the final bills from the carrier to the shipper was not what the shipper anticipated.
So how is the process done?
There is the transactional approach. The carrier sends a bill to a customer and the customer pays it. There is a variation of this where the shipper just sends a check without invoicing anticipating the bill. The former approach is rather costly and the later approach is more efficient until there are unanticipated costs in the transportation process.
Then there are the third party firms that pay a freight for its customers. The third party probably can do the freight payment handling more efficiently than a firm who freight payment does bring profit but the firm loses direct control of some of its cash, and then there is still the problem of unexpected charges.
The bottom line of all of this is freight payment takes a lot of organizations resources to handle for both carriers and shippers. And because it is not sexy or glorious, it suffers from a lack of attention. Many times the lowest paid and least capable workers are assigned the process, with minimum thought of training and support.
Here are some key process thoughts to accomplishing this process more smoothly. I would urge carriers and shippers to separate the predictable costs from the unpredictable costs. The predictable costs can be handled in almost assembly line fashion. When both predictable and unpredictable costs are invoices, usually no costs of the bills can paid timely as somebody has to find the time to work the issue out. I will separately invoice unpredictable costs such as demurrage, unloading charges, and other additional (called accessorial) costs. The carrier and shipper can develop procedures to handle the process of these costs in a timely matter. I think even the shipping company CFO would prefer this as cash flows will be more predictable and the process will be more efficient.