What are Freight Payments? Complete Guide

In modern logistics, efficient freight payment processes, with AI-driven automation and error checking, are crucial for making more accurate and timely freight payments. After all, around 20% of freight invoices contain errors, leading to costly overpayments unless caught early. Automating freight payments not only prevents these mistakes but also ensures accuracy, timeliness, and cost-effective efficiency in your AP workflows.

Common challenges faced by shippers and freight payment companies include using time-consuming paper-based manual systems for payables and payouts. Manual systems are labor-intensive and susceptible to human errors. Fraud-prone paper checks require mailing time that delays payments, whereas digitizing and automating payments with electronic fund transfers (EFTs) streamlines the process.

Understanding the Freight Payment Process

Key stakeholders involved in the shipping and freight payment process include shippers (businesses that ship goods to their customers), carriers, and third-party providers. Third-party providers may include freight brokers (middlemen between shippers and carriers), automation software companies for processing and paying freight bills, and freight audit and payment (FAP) companies. 

The freight process, spanning from shipment booking to freight invoice settlement, includes these steps when a freight broker is involved as the middleman:

1. Freight broker selection: The shipper selects a freight broker.
2. Carrier negotiations: The freight broker negotiates pricing and shipping terms with the carrier.
3. Carrier booking: The freight broker arranges for a carrier to transport the goods. 
4. Shipping: The carrier ships the goods. 
5. Freight Invoicing: The carrier invoices the freight broker (or the shipper, if no freight broker is used). The freight broker sends a freight invoice with added fees for their services to the shipper. 
6. Invoice processing: The shipper or freight payment services company verifies accuracy and processes the freight invoice for payment.
7. Broker pays carrier’s freight invoice: The freight broker pays the carrier’s freight invoice. 
8. Freight broker collects the shipper’s freight invoice payment: The freight broker receives the shipper’s freight invoice payment.
9. Invoice settlement: Cash received is processed by banks via ACH transfer or deposit.
10. Third-party freight audit: The shipper may optionally use a third-party freight audit company after payment to identify errors and request refunds. 

Types of Freight Payment Solutions

Types of freight payment solutions include:

• Traditional methods: Manual processing and paper checks are legacy processes that consume excessive staff time, resulting in payment delays, errors, and payment theft. 
• Modern solutions: Digital platforms for accounts payable automation and making freight payments with EFT payment methods are modern solutions that improve freight payments. 
• Outsourcing options: Shippers can opt for freight audit and payment service providers that act as intermediaries between them and the carriers. Third parties may also assist them in selecting freight carriers. These providers offer a digital platform that detects errors in freight invoices, audits freight charges for accuracy, and facilitates freight payments, which may include factoring or other supply chain finance solutions.

Electronic fund transfers are effectively used for freight invoice payment. One type of cost-effective and fast EFT is Automated Clearing House (ACH) payments in the United States. ACH is a bank-to-bank account transfer (with Same Day or Next Day options) for timely payment processing and receipt of funds by the payee. It works well for smaller, high-volume transactions, such as freight and other invoice payments.

With modern automation and ACH as their preferred choice of EFT payments, shippers can substantially reduce their invoice payment costs. Shippers, freight payment companies, and freight brokers can reduce invoice processing times, allowing them to take early payment discounts (EPD) on their invoices with supplier-offered EPD terms, such as 2/10 net 30.

Outsourcing the processes of carrier sourcing and freight invoice audits can help large enterprise companies and some medium-sized companies save money on shipping, particularly when their freight payments are substantial.

Benefits of Optimized Freight Payment Systems

Automated freight bill payment systems are essential for shippers, including manufacturers and wholesalers seeking solutions, and their third-party freight audit and payment (FAP) companies to make carrier payments.

The benefits of using optimized freight payment systems include:

• Onboarding payees with self-service
• Enhancing accuracy and reducing invoice payment errors 
• Taking early payment discounts on invoices to save money
• Using EFTs instead of fraud-prone paper checks that can be stolen and altered
• Improving cash flow management and financial forecasting
• Strengthening carrier relationships with timely payments and payment status updates

Best Practices for Effective Freight Payment Management

Best practices for effective freight payment management include:

1. Implementing automated audit systems to detect discrepancies

2. Regularly reviewing and updating carrier contracts and rates

3. Leveraging data analytics for informed decision-making

Implementing Automated Audit Systems to Detect Discrepancies

Reducing freight bills before payment through error detection is ideal, although freight invoice audit services may help companies get refunds for freight spend amounts receivable after paying. 

Cash refunds resulting from a review of carrier invoices (and other documents such as a bill of lading) in an after-payment freight audit process are beneficial. However, they penalize cash flow and tie up working capital until refunds are received, making budgeting difficult and resulting in budget vs. actual spending variances. 

Recently changing tariff rates have supply chain impacts that may result in operational disruptions. Increased tariffs may result in surcharges on freight bills, making freight bills more complex and increasing costs. 

An automated system used for freight payments is designed to handle the complexity. Automation software that applies thousands of payment rules to detect exceptions will result in fewer payment errors than manual invoice processing, improving cash flow. It also automates global regulatory compliance for payments.

Regularly Reviewing and Updating Carrier Contracts and Rates

To prevent paying more than current market prices for shipping costs at the current volume, companies and intermediaries must continuously review carrier contracts and negotiate the best rates possible, then update the contract pricing and payment terms accordingly.

Additional transportation charges not specified in a contract include freight accessorial charges for extra services such as liftgate services and special handling. These additional freight billing invoices must also be paid to the carriers and included in the budgeting process.

Leveraging Data Analytics 

Automated payout systems, like Tipalti’s mass payments, provide your company with real-time visibility for transportation spend management. (Tipalti mass payments also processes other types of payout spending, such as independent contractor and creator payments like digital media and royalty payments). Your company views expense categorization, supplier information, and key metrics. 

You can create AI-driven queries that will analyze the transportation costs as business intelligence. Companies use the results for informed decision-making, including determining where cost savings may be available through making spending changes. 

Choosing the Right Freight Payment Solution

Selecting the ideal freight payment solution for your company includes:

1. Assessing company needs based on shipment volume and complexity

2. Evaluating the scalability and integration capabilities of payment platforms

3. Considering the reputation and reliability of third-party service providers

Tipalti Features and Benefits as a Freight Payment Solution

Tipalti offers a cloud mass payments solution for shippers and third-party freight service providers to make global freight payable and other payouts, as well as AP automation for supplier invoice processing and payments. Tipalti has over 5,000 customers across all industries, benefiting from its solutions through streamlined processes that lead to faster payouts and cost reductions. 

Tipalti payables automation software features and benefits include:

• Replacing manual processes with streamlined automation and digitization for efficiency 
• Multi-entity and real-time (with these ERP capabilities)
• Self-service payee onboarding
• Reliable and secure payments
• Timely global payments processing with error checking and fraud reduction features
• Payments to 200 countries in 120 local currencies
• Automated instant payment reconciliation
• Spend visibility and analysis
• Faster payouts and cost reductions 

Multi-Entity and Real-Time

Tipalti’s scalable, unified finance automation platform has ERP integration to sync data and instantly reconcile payments. Leveraging the multi-entity and real-time functionality of your ERP or accounting software, Tipalti automation software offers these capabilities.

Reliable and Secure Payments

Tipalti is a regulated and licensed money services business (MSB) in the United States and Canada, and an electronic money institution (EMI) in the UK and Europe. As a payment provider for users, it reliably makes global payouts and payments with enterprise-grade security. Tipalt’s advanced FX products work with its mass payments and AP automation products to centralize global payments for all subsidiaries, eliminating the need for your company to establish an international regional banking network.

Payee Onboarding, Timely Payment Processing, and Reconciliation

Tipalti’s self-service payee onboarding through a portal includes collecting W-9 or W-8 forms before the first payment for tax compliance, obtaining accurate contact information, and selecting one of over 50 preferred global payment methods, including various types of EFTs. Payment options include ACH, global ACH (like SEPA), credit cards, prepaid debit cards, wire transfers, and PayPal. 

Tipalti is AI-driven and automatically performs digital automated invoice processing or payout processing, eliminating paper and manual processes. Tipalti software validates payees to reduce fraud risks. Tipalti uses AI for automatic coding. It applies 26,000+ automated payment rules for error checking and flags exceptions through notifications. Tipalti automatically communicates and routes payments data for approval.

Tipalti makes payments to over 200 countries and territories in each payee’s local currency and selected payment method. Tipalti enables payouts in large scheduled batches of up to thousands of transactions, resulting in significant efficiency. It shows cash requirements before making payments to help manage cash flow. Tipalti syncs data with your ERP at the sub-ledger level and automatically prepares an instant payment reconciliation. 

Tipalti’s mass payments and AP automation efficiency let you take early payment discounts on time. 

Business Spend Visibility and Analysis

You can review spend by category, entity, and the combined corporation. Tipalti AIâ„  enables users to create spend queries, providing real-time information to reduce business spending. 

Next Steps: Implementing Efficient Freight Payment Strategies

Companies shipping goods or their third-party freight service providers must efficiently pay shipping costs and gain control over freight bill payments through automation, as well as reduce error rates from stronger financial controls. 

For effective financial management, efficient freight payment processes in modern systems that adhere to best practices and strengthen controls are essential. Automation software helps companies reduce bottlenecks and costs, saving significant amounts of time in processing a high volume of freight bills. 

Tipalti mass payments is a modern, multi-purpose freight bill payment solution for making large batches of global payouts in local currencies to freight carriers, creatives, ad networks, and independent contractors. Get the Optimizing Global Payouts eBook to learn more.