Post-pandemic paperless progress

Now, It’s generally recognized that there’s a difference between freight audit and payment programs and freight settlement.

The former being a form of match-pay, with the result being a processed freight bill for the accounts payable department; and the latter being an exchange of detailed transaction information, including transit tracking and delivery confirmation in exchange for a (rapid) payment of a contractual amount.

The need for historic transaction detail in the analysis of service performance, customer demand, and network optimization is driving the need for freight settlement rather than classic freight bill processing.

The design of a settlement agreement as a part of the logistics services contract has some unique features that change the process and bring in more parties to the transaction.

In the classic freight payment process, the service provider creates an invoice based upon its internal rating systems and delivers this via paper or digital message to the designated payment processing center of the shipper.

Often, this is a third-party freight audit and pay operation. The focus is on the minimum amount of data fields required to identify the shipment in the shipper’s system so that a match can be made—and amount matched to the shipper’s accrual for that customer order. If the amounts are within a tolerance, the invoices are paid and filed away.

In a settlement process, the service provider transmits an invoice to the payment center and a detailed transaction file to the designated data center of the shipper. When both are received and processed the payment is authorized. The data file has operational information on time of each step of the transaction as well as details on weight, extra services performed, delays and, if needed, temperature metrics en route.

The value of this data to shippers who want to effectively measure and manage their distribution network can be critical to the business’s success. As an example, an international company shipping temperature sensitive product identified a minimum of 58 fields of data they would require on their products to maintain records for their production, sales, and regulator audits.

During the pandemic, the shift from paper passing to digital processes accelerated. However, in the rush to do so, many firms forgot to require service providers to routinely provide the full transaction data—they simply went from paper invoices to digital messaging.

The first step in creating a settlement process is to contract for it. Both parties—or more if there is a broker involved—must reach an agreement on a requirements document, data standards and a process for auditing.

To start, the shipper needs to bring in IT, marketing, finance, and accounts payable for an internal requirements and capability assessment. Then each of these departments need to assess their counterparts’ capabilities. A key question is where the new flood of data will be stored—this may lead to the discussion of blockchain, a neutral digital ledger shared by all parties. In blockchain, invoicing is optional—something that can save all parties time and money.

In the future, we can foresee more value and automation in the settlement process with opportunities for service providers to enhance their offerings and becoming closer long-term partners with shippers. Service providers who can enable shippers and receivers to quickly assess their own supply chain networks, and gain insights into customer demand and order patterns, will be setting themselves up for success.