Freight Payment Guide: Types, Strategies & Shipper Choices

Author: Bryan Van Suchtelen
January 17, 2024

To the customer, the concept of “freight” means little more than how the goods they order arrive on their doorstep. The package’s journey may have spanned mere miles or entire continents, and it may have taken an hour or days of transit time. For all the customer knows, their order arrives by effortless magic.

Freight managers and deliverers know the disillusioning reality: the shipping process is complex, expensive, and riddled with opportunities for error. Freight payment is a complicated procedure itself, as large shippers can rack up thousands of invoices across various accounts.

Understanding freight payment is critical for shippers to manage their transportation costs. Employing an efficient freight payment system can reduce costs and increase your business’s profits while reducing errors that cost you money and time.

Understanding Freight Payment

Freight payment is defined as the compensation for goods transported. It’s a simple concept, but put into the context of the complicated networks of transportation, vendors, and U.S. economy nuances, the simple freight payments add up to enormous importance. 

The United States alone contains 129.9 million households and more than 7.9 million business establishments, and sustaining an economy of that volume requires a lot of transported goods and, by extension, a lot of freight payments.

In 2021, the U.S. transportation system moved a daily average of 53.6 million tons of freight worth an estimated $54 billion. That value will likely increase yearly due to the trend of high-value, low-weight goods outnumbering low-value, high-weight goods. In short, freight shipments across the nation are high in number and value and only seem to be expanding.

On the other hand, freight payments are the fuel that keeps the entire transportation industry accelerating. Luckily, freight billing has undergone many evolutions since the bygone days of paper filing and recording to maintain efficiency in a growing nation. 

Carrier Payments

Types of Freight Payment

These are the most common modern freight payment types and real-world examples.

  • Prepaid – In this payment method, the shipper is responsible for the transportation costs. While the shipper may not necessarily pay these costs upfront, they will be invoiced for the charges which are determined based on various factors like weight and distance.
  • Collect – This method indicates that the receiver of the goods will be billed for the transportation costs. Payment is made once the goods are delivered and is calculated based on factors such as volume, weight, and number of shipments.

Collect and prepaid are key terms in freight payment that clarify who bears the financial responsibility for shipping costs. 'Prepaid' indicates that the shipper will be billed, while 'collect' signifies the receiver will be invoiced. Understanding these terms is crucial for managing financial logistics in transportation

Freight Payment Strategy: Advanced Audits

The implementation of Advanced Parcel & Freight Audit Solutions is a significant strategy for shippers aiming to streamline their freight payments. These solutions are shaped by continuous technological advancements in the freight industry. Enlisting a payment reporting or auditing partner can help shippers leverage new platforms to automate payments, increasing the accuracy of their invoices and freeing up time. Lojistic is one exemplary solution used to lower shipping costs and help manage invoices for shippers.

Shipper Choices in Freight Payment

As more strategies for freight payment develop thanks to new technologies available to shippers, choosing the most suitable payment method for your business can be difficult.

When selecting a freight payment or freight auditing solution, some factors to consider are your volume of invoices, cost-management capabilities, and your relationships with carriers. 

  • Invoice Analytics – If you manage a high volume of invoices regularly, you need a powerful tool to process all the data, pull the salient information consistently, and arrange it in a clear, digestible format. The better your analytics, the more informed and impactful your shipping decisions can be.
  • Cost Management – Your company needs a business-intelligent partner to find the gaps where money slips through the cracks. In the modern age, software and automated solutions are great tools for this purpose. The best freight payment platforms available can easily and instantly identify where the cost reduction opportunities are and help you take the necessary corrective action.
  • Improving Business Relationships – Your carriers and partners benefit when you pay your freight payments promptly and efficiently. In this way, agile freight payment solutions can improve your carrier relationships and drive business growth as your reputation grows, more carriers approach you, and quality carriers return for repeat business.

Benefits of Efficient Freight Payment

The benefits of efficient freight payment systems are more considerable than you may assume at first glance. The below encapsulates some of the leading advantages of switching to a high-quality freight payment partner.

  • Save Time – Manually auditing each of your shipping invoices can take up a huge amount of time and resources. When a reliable third-party service steps in to perform the audit, you are free to attend to other aspects of your business while maintaining peace of mind that your shipments are as profitable as possible.
  • Comparative Analysis – Whether you already have an audit company hired or prefer to handle audits and chase refunds yourself, you can still benefit from a tech-enabled freight audit solution. By simply comparing your self-audit or external auditor’s findings to a Lojistic analysis, you can be sure you’re getting the maximum refunds available to your business and aren’t missing any opportunities.
  • All-In-One Service – The best freight payment solutions can do much more than audit and process your invoices. A modern, high-caliber logistics solution can optimize your carrier contracts, automatically manage the entire payment process, access competitive carrier rates and discounts, and safeguard your information and data with digital-age security protocols. What starts as an opportunity to streamline freight payments can revolutionize your entire business strategy.

Comparison with Other Payment Solutions

Traditional freight payment solutions might work for some companies. Still, in many cases, shippers aren’t taking full advantage of the technological innovations that can optimize the process. Outdated payment methods can create unnecessary risks and weaknesses in your shipping strategy in the following ways.

  • Frequent Errors  – Human error is not only possible when auditing freight bills—it’s probable. The time and energy requirement to check and recheck every line item of every invoice is colossal for a sizable company. This leads to shortcuts taken on the processing side, which yields errors due to the complexity of the shipping process and the high volume of invoices. This is a needless risk when technology equipped with anomaly detection and automated auditing can more accurately do the same work in a fraction of the time.
  • Common Overpayments – In a world where individual companies can negotiate their own rate structures and every mode of transport can have different regulations and fees, it’s easy to be overcharged because payment methods are confusing and complicated. Even with routine shipments, a variety of factors can still influence payment, like equipment variables and accessorial costs. An automated freight payment system can adapt to the industry's volatility and save you from overpaying.
  • Scalability – Now more than ever, you can access new customers and new business opportunities around the globe thanks to connection-enabling technology. As your business evolves and grows, you need a freight payment solution that can grow with it. No one wants to adopt a new system every year when the previous technology becomes outdated. 

Lojistic: Your All-In-One Solution for Maximized Freight Payment Efficiency

Freight is a cornerstone on which our country prospers, and as the industry grows, so does the need for simplified freight payment solutions that support your business’s growing volume of shipments and complexity of orders.

There’s no one-size-fits-all formula to make manual freight payments and auditing easier. It's time- and attention-intensive labor, especially at scale. At the same time, cutting costs, improving relationships with carriers, and gathering and reviewing analytics are all essential to growing your business, but your time and resources are finite. 

If you need a platform to manage your freight payments automatically and help you accomplish your business growth goals, you need Lojistic. With solutions purposefully engineered for all of shipping’s complexities, Lojistic instantly audits your invoices so you can capitalize on recovered refunds, saved time, and insights to optimize your carrier contracts. 

Try Lojistic’s free platform to experience the difference an intelligent freight audit & payment solution can make for your business. 

Need even more freight wisdom and advice? Lojistic is your source for the latest supply chain insights, from LTL vs FTL to freight classes and freight costs accounting guides.

Sources: 

U.S. Department of Transportation. The Nation Served by Freight. https://data.bts.gov/stories/s/The-Nation-Served-by-Freight/d3er-58uw
U.S. Department of Transportation. Moving Goods in the United States. https://data.bts.gov/stories/s/Moving-Goods-in-the-United-States/bcyt-rqmu

Author

Bryan Van Suchtelen

Bryan Van Suchtelen

Corporate Director of Parcel Rate Services

With more than 34 years of parcel experience, Bryan Van Suchtelen is the Corporate Director of Parcel Rate Services at Lojistic, one of the nation’s top logistics and transportation cost management companies.

Prior to joining Lojistic in 2015, Bryan enjoyed a 26-year career with UPS where his roles included Pricing, Field Sales and Director-level Sales Management of some of UPS’s largest customers.

At Lojistic, Bryan leverages his wealth of experience/expertise to identify and execute supply chain cost management solutions for parcel shippers of all sizes. Bryan has helped his customers reduce their shipping spend by tens of millions of dollars.
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