fastlane
What to look for in a freight
payment firm
DURING THE PAST YEAR, THERE SEEMS TO HAVE BEEN A
resurgence in the outsourcing of freight bill auditing and payment
responsibilities. For instance, 35 percent of the North American
respondents to the “2012 Third-Party Logistics Study” conducted by
Penn State and CapGemini said they outsource those activities. And
while the percentage is much lower in Europe and Asia, interest in
these regions seems to be increasing as well.
Although the outsourcing of any logistics function merits thorough
due diligence, extra effort should go into the selection of a freight bill
payment (FBP) provider, given the financial sensitivity and amount
of money involved. But if it’s so sensitive, why do it in the first place?
There are several good reasons.
For starters, there’s the potential for big cost savings. It can cost a large corporation anywhere from
$10 to $50 in fully allocated costs to pay a single
freight bill. When a competent FBP company pays
the same bills, the cost to the client will be about 5
to 10 percent of the internal expense. Add to that
another 2 to 5 percent saved through a reduction
in incorrect and duplicate freight bills, and the savings to the client can be significant.
The real value, however, is added through the
business intelligence generated by the provider. The
technology used by most FBP companies is superior to that of many of their clients, which often translates to enhanced
monitoring and analytical capabilities. Other benefits include report
generation, visibility to freight bills, and improved data integrity.
But all this raises the question of how to select the right FBP
provider. Although each client’s needs will be unique, there are certain basic criteria all companies should consider when choosing a
partner. They include the following:
Financial stability. The most important selection criterion will be
financial stability. Find out how long the provider has been in business
and whether it has sufficient resources to survive economic downturns. Does it pay carriers promptly? What are its investment policies?
What type of fiduciary responsibility and protection are provided?
Business experience. How much experience does the candidate
have? How many bills does it pay annually, and for whom?
Commitment to technology. Does the provider have the technology
necessary to take advantage of its own critical mass and provide the
output you require? Does it have the flexibility to accommodate each
client’s unique needs as they change over time?
Personnel depth and strength. Remember,
you’re not just purchasing services; you’re buying expertise. Check out the management team
as well as the audit staff. Does the provider have
enough people to audit thousands of bills, or are
some of the invoices likely to flow through
unaudited because of workload or financial
considerations?
Reputation. Seek out both clients and carriers
that have done business with the provider and
ask about their experiences. Don’t limit your
inquiries to the references suggested by the candidate.
Security. Information and
systems must be fully protected from outsiders. Don’t hesitate to bring your IT personnel into the discussions to
ensure that all necessary protections are in place. Make
sure the candidate has adequate provisions for the off-site storage of backup data
and that its operations are
Sarbanes-Oxley compliant.
Cost. While price shouldn’t necessarily be last in
importance, neither should it be the first and
foremost consideration. In fact, cost should only
come into play after you’ve ascertained that the
candidates meet all of your other criteria. Beware
of costs that are too low. Cash flow is important to
the FBP company, and some may be tempted to
quote unrealistic prices simply to gain the float.
That can be a disaster waiting to happen. In the
words of the late industry expert Bob Delaney,
“You pay peanuts, you get monkeys.” ;
Clifford F. Lynch is principal of C.F. Lynch & Associates, a
provider of logistics management advisory services, and author of
Logistics Outsourcing – A Management Guide and co-author of The Role of
Transportation in the Supply Chain. He can be reached at
cliff@cflynch.com.
