logisticstechoutlook

Tips to Reduce Freight Invoice Rejection Rates

Logistics Tech Outlook | Wednesday, June 15, 2022

Freight payment is the supply chain's brown corrugated box. In a world of regulatory complications, capacity limits, geopolitical concerns, increasing demand, global pandemics, and changing consumer behavior, it's a dull topic.

FREMONT, CA: Freight payment is the brown corrugated box of the supply chain sector for a good reason. It is a dull topic in a world beset by regulatory complications, capacity limits, geopolitical issues, rising demand, global pandemics, and shifting consumer behavior. Given current market conditions, freight payment is often not among shippers' top 10 worries.

This is not to argue that freight payment does not merit careful consideration. If not appropriately managed, carrier bills are notoriously incorrect, threatening to interrupt carrier performance and capacity availability.

How wrong, though, are carrier invoices? One third-party freight auditor reports that one-fourth of the bills it evaluates are rejected owing to inaccuracies, according to estimates by industry analysts ranging from 15 to 66 percent. How can you ensure that freight bills are accurate and carriers are paid promptly to maintain an uninterrupted supply chain?

Historically, rejections have been used to influence carrier behavior. It is perfectly appropriate to hold carriers accountable for meeting qualification requirements. Without a delivery receipt, the invoice should be refused. However, maintaining the carrier to an invoice validation standard that includes the transmission of additional information, even when it is not regularly given, might be considered a subrogation of the shipper accounting process.

This does not indicate that validation standards should be relaxed. There is a distinction between a billing error that permits partial payment (such as an inaccurate discount) and an outright rejection that results in the carrier receiving no payment. Approximately one to two percent of all invoices are rejected outright due to issues such as a lack of supporting paperwork. Most invoices given to a freight payment provider pass the initial test: Is it the client's invoice, and is the carrier approved? Most rejections are caused by additional validations connected to shipper-specific business requirements and thus take the most work to overcome. Therefore, the correctness of the carrier's invoice relies primarily on the information provided by the shipper. If the shipper provides a bill of lading, the invoice will only be as accurate as of the information on the bill.

Minimum Invoice Rejection Level

Invoice rejections should not exceed 4 percent of all invoices received, with 2 percent representing best practice. If your organization's rejection rate is greater than 4 percent, the problem is likely not the carrier billing procedure but the rules imposed on the freight audit provider to manage the process. For invoices to be paid appropriately and promptly, the carrier must receive the relevant information. In addition, shippers must assess whether a business rule has moved the responsibility for data gathering, accounting, and even end-customer service standards to the carrier, who is frequently ill-equipped to address these concerns. Invoice rejection can also be caused by other factors, such as a new contract, renegotiated rates, or a new carrier arrangement.

The most common reason for invoice rejection is the application of improper or extra assessorial fees. To prevent repeat issues and late payments, the carrier should do spot checks and modify its core processes when receiving feedback that an invoice audit led to a rejected invoice.

The shipper determines the rules, and the carriers are aware of this. Rejections increase stress in this relationship, favoring one party over the other. To reduce invoice rejection rates, freight payment involves robust processes, extensive data capture, rigorous auditing, and complete adherence to the shipper client's business requirements.

Weekly Brief

Read Also