As an independent truck driver or owner-operator, your load revenue will typically go through two separate processes known as freight audits and freight payments. But what are they? How do they work? Who handles these freight audits and freight payments?
What are Freight Payments?
Freight payments are the financial collection process between carriers and shippers that ensures invoices are received, audited, processed, and paid. They are common practice throughout the shipping and logistics industry and are increasingly outsourced to specialists.
These accounting specialists are known as third-party logistics (3PL) companies and their work is instrumental in providing data for the U.S. Bank Freight Payment Index.
This freight payment index is published quarterly and measures current freight shipping volumes and expenditures at the national and regional levels. It’s a valuable indicator of the trucking industry’s health and an important early indicator for changes in the national economy.
What are Freight Audits?
While similar to freight payments, freight audits are focused on a process where shipment details are verified against the Bill of Lading (BOL) to find any discrepancies. It’s a vital process for carriers, independent truck drivers, owner-operators, and shippers. In short, freight audits make sure you get paid the correct amount for the work you do. So how often do freight audits discover discrepancies?
According to a report by ControlPlay, only 17% of shipping invoices are accurate. Without the freight audit process, thousands of dollars in revenue can be overbilled or missed because 83% percent of shipping invoices will have errors.
...freight audits make sure you get paid the correct amount for the work you do
The most common mistakes discovered by freight audits include:
- Delivery rate discrepancies
- Error in the total cost charged
- Wrong application of tariffs, taxes, or customs duties
- Inaccurate weights or quantities in the shipment information
- Inaccurate recording of detention hours and layovers
While freight auditing can be performed by any company, the 3PL companies, commonly employed by shippers, typically conduct freight audits as a part of their freight payments processing.
Why do Shippers Use 3PL?
Shippers use 3PL because they make the freight audit and payment systems more efficient and cheaper than supporting an in-house accounting department. 3PL companies have performed so well in this role that 96% of Fortune 100 companies use some sort of 3PL.
3PL companies are focused on performing freight payment and freight audit functions enabling them to lower their cost per payment/audit. In addition, their level of specialization guarantees the information they process is more accurate, which saves shippers money by rooting out overbilling issues.
Outsourcing the freight audit and freight payment work to a 3PL company enables the shipping company to focus on what they do best—shipping.
Do Owner Operators Need a 3PL?
The freight audit and freight payment processes are lengthy, meaning you may have to wait up to 90 days before getting paid for a load. If you’re on your own as an independent truck driver or owner-operator, that’s too long to wait when you have weekly and monthly business expenses and bills to pay.
One option is to use a factoring company to handle your invoice billing and payment collection. You’re able to get your money faster, but it’s going to cost you. Factoring companies charge 1% to 5% for each invoice, plus a wide range of fees for minimum volume requirements, ACH deposits, money wires, advance rates, termination fees, and anything else they can throw in as a hidden fee. If you elect to use a factoring company, be sure to read the fine print and calculate how much of your hard-earned revenue they’re going to take.
You’re not out there, working hard day after day to have yet another company dipping into your revenue. So what do you do when you don’t want to give up chunks of your revenue to factoring companies or don’t have 90 days to wait for a payment?
Drivers with CloudTrucks get paid instantly upon verification of delivery, eliminating the need for a factoring company, and best of all, quick pay is free. Ask us about our CT Cash card to learn more.
We also handle the collection of all your accessorial charges like detention, lumper fees, TONU (truck ordered, not used), and more. To learn more about CloudTrucks, visit our Getting Started page, and if you're ready to maximize your revenue, sign up today.