Following the e-commerce boom and endless disruptions in logistics, internal resources are stretched thinner than ever. Managing freight audit and payment (FAP) internally has become a task fraught with inefficiencies and high costs. Sadly, in-house auditing often leads to a significant drain on profit margins due to the sheer volume of work and the expertise required.
But why?
What keeps those programs from turning a strong profit, and what’s the real value of outsourcing? Let’s take a deeper look.
The hidden costs of an in-house FAP program
When companies choose to manage FAP internally, they often underestimate its true cost. This is a common misconception in how people versus technology can improve operational efficiency across supply chain management processes.
Managing FAP internally means dedicating staff to handling everything from invoice receipt and verification to payment processing and dispute resolution. This requires skilled personnel who are both familiar with logistics and shipping rates and adept at spotting billing discrepancies. Additionally, the technology needed to track, process, and store freight invoices is expensive. This includes investments in secure storage solutions, data entry systems, and potentially custom software designed to manage the complexity of freight invoices.
Example of administrative cost calculation for running an in-house program
Let's consider a possible scenario:
A hypothetical logistics manager spends an average of 15 hours per week auditing freight invoices. Suppose they handle about 100 invoices per week, and the average wage for this role is $30 per hour.
Labor costs associated with a single worker
- Weekly hours: 15
- Hourly wage: $30
- Weekly labor cost: 15 hours x $30/hour = $450
- Annual labor cost (50 working weeks): $450/week x 50 weeks = $22,500
Potential for error and savings
- Average error rate in manual processing: 1.5%
- Average invoice value: $200
- Potential overpayment per week: 100 invoices x $200 x 1.5% = $300
- Annual potential overpayment: $300/week x 50 weeks = $15,000
So if the potential savings found and addressed by an in-house auditor is actually less than that person’s cost, it becomes a no-brainer about why outsourcing is so valuable. Outsourcing eliminates wages from the equation.
These figures highlight why companies are increasingly turning to outsourced FAP solutions. It really is that simple.
Outsourcing FAP puts efficiency and expertise at your fingertips
Outsourcing FAP offers a strategic advantage, providing access to specialized skills, advanced technology, and process efficiency that in-house teams can rarely match. This not only alleviates the burden on your internal teams but also enhances financial accuracy and operational agility. And it’s among the most sought-after parts of advanced technologies within logistics.
A recent report from Verified Market Research and shared by Inbound Logistics found, “In addition to cost reduction, outsourcing the freight audit and payment function enables shippers to reduce time spent on tasks like collecting carrier invoices, conducting freight invoice audits, making payments to carriers, and pulling detailed reporting on freight costs and services.
The highly regulated nature of the U.S. transportation market is another factor pushing shippers to freight audit and payment services. The report shows that shippers are adopting these services to ensure compliance with various regulations.”
As businesses strive to adapt to the changing dynamics of global trade and supply chain management, the decision to outsource FAP is a clear necessity. It helps today’s shippers maintain their competitive edge and financial health.
How to choose the right FAP provider
It’s not an easy process to choose an FAP provider. There are hundreds to consider, and every company claims to be the best. However, the best providers actually go beyond auditing and work to become an extension of your team; they’re consultants who have your best interests in mind.
Here are a few simple steps to choosing the right FAP partner for your needs.
- Evaluate experience and reputation.
- Assess technological capabilities.
- Understand the cost structure.
- Check for customization and flexibility.
- Consider customer service and support.
- Ensure compliance and security.
- Verify scalability.
- Think about reporting functions offered by the partner.
Choose IL2000 to reap the rewards of outsourced FAP and a strategic partnership in one solution
Managing FAP in-house can significantly strain resources and diminish profitability, but outsourcing offers an alternative to diverting more internal resources to the problem. Outsourcing eliminates much of the maintenance and setup costs of such a program.
Plus, it can be combined with other services, such as supply chain consulting or access to a transportation management system. As a result, the opportunities for growth through outsourcing are too great to ignore.
Explore the value of outsourcing FAP and partnering with IL2000 by connecting with a consulting engagement executive now.