For over 50 years, shippers have outsourced the audit and payment of transportation freight bills. And it's still a popular practice today. While it might not be at the top of the list of most commonly outsourced supply chain-related functions, nearly a third of the North American respondents to the 2013 Third Party Logistics Study conducted by Capgemini and others reported that they outsourced this task.
There are significant advantages to outsourcing freight bill auditing and payment (FBAP), but because of the amount of money that flows through the process, it's important to exercise extreme care when doing so. Ten years ago, the industry suffered a blow when two large freight bill payment companies left clients with over $25 million in unpaid freight bills. Now, it's happened again, with two companies recently accused of leaving their clients liable for millions of dollars in unpaid invoices. One of these situations was at least partially a result of embezzlement.
Fortunately, these are the exception, not the rule. Most of the players in this industry are financially sound, well-managed businesses, and we don't want to throw the baby out with the bath water. Nonetheless, the general business climate—as well as common sense—dictates that prospective outsourcers conduct thorough financial due diligence in selecting a provider. Remember, if the provider doesn't pay the carriers, you as a client are liable for the charges, even if you have already advanced the funds. Also keep in mind that the FBAP industry is not regulated, making it even more critical to investigate, analyze, and verify.
While nothing can be outsourced without some risk, I believe there are 14 steps that, if taken, can minimize the financial risk to the outsourcer. They are as follows:
Bottom line: The outsourcing of freight bill audit and payment is an important financial step for a shipper and should be treated as such. Because these arrangements are often complex and require the client to relinquish control of large amounts of money, financial due diligence must be at the top of the list when qualifying potential providers. While no outsourcing arrangement is absolutely risk free, the client should ensure that its funds are as safe as they would be under its own management and control.