The tables have turned on shippers. Throughout the world, shippers are up against demand, skyrocketing rates, capacity, and unpredictability. Some of this is augmented by a new dynamic: the market is favoring the carrier.
Carriers have more choices, and they are willing to make changes at a moment’s notice. Retaining carriers, an issue that has always mattered, is now tenuous. So, what are shippers going to do to keep carriers happy?
One area of opportunity has shippers shoring up operational practices to achieve just that: on-time payments. Paying carriers on time is the single best way to earn loyalty. It is made possible by doing something shippers should already do: using tech-based tools to manage invoicing and payment processes, and embracing new technology to unlock automation.
Automated Payments Are Now a Carrier Retention Strategy
Shippers have been plagued by manual processes, inefficiencies, and a huge margin of error in invoicing and payment. It’s the bane of many companies’ existences, and a reality that’s simply been ignored or placed at a lower priority. But now, as the need to cultivate good carrier relationships reaches a critical mass, course-correction is imperative.
To start, a solid freight audit and payment system leverages technology to gain visibility into the right data, tracing money to the source and identifying problems that would otherwise lead to gaps or delays. Broken systems contribute to carrier churn, and knowing what’s wrong is the first step to fixing it.
Once there is visibility, companies are poised for automation. Automating carrier payments has four positive outcomes:
1. Decreased pressure on internal teams
2. Fast payment to carriers
3. Better payment reconciliation and fraud protection
4. Better relationships with carriers
Decreased Pressure on Internal Teams
Internal AP teams face the logistical challenges that result in friction and frustration. Endless cycles of loading, reconciliation, processing, confirmation, troubleshooting, and payment happen on repeat. The system can be thrown off balance at the slightest disruption, and disruption is all too common. Sometimes a practical approach to this works best. Don't hold up a $10K invoice for $1.00; look for ways to establish reasonableness in the audit/approval process to reduce exceptions. It may be practical to reduce the number of exceptions AP teams are managing. Get clarity into the process and exercise control over operations. Then, automate what you can, knowing that purposeful exceptions can be reviewed and approved while maintaining a sustainable flow of transactions.
Automated carrier payment requires clean, reliable data. The best way to achieve this is utilizing electronic billing: EDI and EDI alternatives like flat files, XML, and Excel formats. These create better data consistency, quality, and faster cycle times for payment, and EDI alternatives permit flexibility for carriers not capable of formal EDI. Once set up, automation does all of the heavy lifting, making it possible to process and send payments on any scale.
Fast Payment to Carriers
Reducing errors and exceptions improves payment cycle time and increases the likelihood of meeting payment terms with your carriers. Freight audit and payment systems meet audit and business rule requirements that promote systemic cost allocations and integration into AP platforms. This automation and integration promote less manual intervention, improve data quality, and generally solve most of the “slow payment” problems.
When the financial team has clarity and can rely on the quality and accuracy of costs posting to the AP platform, they can pay out or automate payments with confidence.
Payment acceleration programs can be a win-win for shipper and carrier, guaranteeing on-time or even early payment while also giving the shipper options for supply chain financing. On-time or early payments can also help the shipper reach "shipper of choice” status in the eyes of the carrier.
Better Payment Reconciliation and Fraud Protection
The security of faster payments is a point of concern. Technology is essential for maintaining the right checks and balances while getting carrier payments out faster. Speed can’t compromise quality.
Third-party providers can automate many of the processes that perform the checks and balances necessary to ensure invoices are valid, thus paving the way for quick payment reconciliation, verification, and posting.
Better Relationship with Carriers
Ultimately, managing carrier relationships is supported by having relevant information in the form of KPIs and scorecards. Understanding the current statement of account, along with measurements for data quality, payment cycle time, and billing accuracy are all important data points that can create healthy conversation relative to payment automation and on-time payment. Adopting or refining technology to gain visibility and streamline operations and capturing good KPIs along the way will enforce a partnership approach to achieving continuous process improvement.
Bonus: Growing in a tech-first direction inspires trust that a shipper intends to be a major player for the long-haul. Honest feedback, using a carrier scorecard approach, is helpful for identifying areas for improvement and creates alignment between a shipper and carrier and a third-party provider.
Benefits of Better Carrier Relationships
Aside from the fact that shippers need carriers to function, there are plenty of benefits to strategically investing in carrier relationships.
- Longevity, loyalty, and retention — Churn is expensive. Carriers that have a higher degree of loyalty to a shipper that won’t jump ship at the next best offer. The longer they stay around, the more mutual benefits all around.
- Competitive advantage — The working relationships that shippers maintain with carriers provide a competitive advantage. Shippers can offer more reliability to the end customer and build predictability into service offerings.
- Better service — Regardless of scale, people still do business with people. And if those “people” (on both sides) can be trusted, that positive experience will translate into improved service.
- Better negotiating power — When shippers have a bench of high-performing carriers, they come from a place of strength in negotiation. They have more to bargain with and may represent more value in the market.
Becoming a Shipper of Choice
The ability to offer faster payment terms makes an organization a shipper of choice to a whole network of carriers. This network has inherent value for the business today and for future growth.
In a world of stiff competition for carrier loyalty, on-time payment is a differentiator that can make or break an organization. While there are complexities to implementing new technology or processes that enable this, it’s a worthwhile investment that will pay dividends.
Without reliable carriers, shippers face the major risks of days payable outstanding, disrupted working capital objectives, and financial challenges. Much of this is alleviated when carriers show up, hit their targets, and stick around.
The incentive of on-time payments is one shippers must offer. New technologies that make it possible are the key to achieving growth with a reliable network of carriers.
Steve Beda is executive vice president of customer success for Trax Technologies, a global leader in Transportation Spend Management solutions. Trax elevates traditional Freight Audit and Payment with a combination of industry leading cloud-based technology solutions and expert services to help enterprises with the world’s most complex supply chains better manage and control their global transportation costs and drive enterprise-wide efficiency and value. For more information, visit www.traxtech.com.
This article originally appeared in the September/October, 2022 issue of PARCEL.