Money drives any business, but in the freight and logistics market, business cannot occur until funds are moved. Considering how crucial seamless payments are in the market, it’s concerning that issues like payment delays, errors and fraud remain so prevalent.
These issues can be traced to the industry’s complex nature, coupled with its ongoing use of legacy technologies that fail to deliver the accuracy and speed business partners need to conduct business. CloudTrade Logistics Vice President Roger Hatfield told PYMNTS in a recent interview that freight and logistics is “an industry driven by payments.” But to fix problems with B2B payments in the freight and logistics sector, solution providers must begin with the invoice.
In addition to being one of the first steps in initiating payment, the invoice holds key information that both sides of a transaction need to move money (and goods) efficiently. Today, however, the logistics sector continues to rely on paper invoices, manual data entry, Electronic Data Interchange (EDI) and Optical Character Recognition (OCR) technologies.
“In the logistics vertical, a significant portion of freight invoices are processed using traditional EDI,” Hatfield said. “However, there is still a lot of paper being processed, due to a lack of resources for EDI projects – and the invoice volume is also too low. The accuracy of OCR solutions is not acceptable, and the fees for outsourced data entry continue to increase.”
The most immediate implications of a lack of efficient digital data exchange between two business partners in this industry include a customer’s delayed payment to a service provider, as well as the service provider failing to efficiently reconcile payments received.
But Hatfield explained that the knock-on impacts of this data bottleneck go deeper.
Data Bottlenecks, Business Delays
“If you’re capturing bad data, then all your decisions in the payment lifecycle can be at risk,” he said. “OCR or manual data capture is slow and often ridden with errors, and the complexity of some freight invoices means you only have time to capture a fraction of the information that’s contained on an invoice. This is all valuable data.”
This shortcoming exposes businesses throughout the supply chain to issues like payment delays and even fraud, due to the inability for companies to two- or three-way match an invoice against a purchase order or delivery documentation. It can also lead to non-compliance with rules and regulations like tax and customs requirements, which Hatfield said is “one of the biggest challenges to the industry today.”
Even when companies invest significant resources in developing compliance programs and establishing their systems and processes to remain compliant, a lack of accurate, timely data means mistakes can be easily made – no matter how many control points are in place.
Shippers relying on supply chain financing, factoring or dynamic discounting solutions also stand to lose significantly as a result of inaccurate or delayed invoice data, noted Hatfield.
“Since the invoice discount rate is driven by the age of the invoice, the processing cycle is critical,” he said.
Faster (Accurate) Invoices, Faster Payments
In B2B payments, it’s common sense that the faster an invoice is sent and received, the faster a payment can be initiated. While that’s not always the case as companies delay supplier payments to hold onto capital for as long as possible, Hatfield said there are tangible benefits to “invoice velocity,” as CloudTrade described it, including the ability for a supplier to be paid as well as the opportunity for a buyer to access early payment discounts.
Once again, data emerges as a valuable asset when it comes to faster invoicing, he continued, thanks to the ability to manage complex shipment invoices – which can contain multiple bills – in datasets for individual processing. In other words, faster invoicing means faster data analytics when companies deploy the right technology.
In CloudTrade’s case, that comes in the form of its digital invoice processing platform for the freight industry, announced earlier this month. The solution aims to deliver automated data capture and analytics while allowing industry players to continue the practice of sending PDF invoices by email. Hatfield also noted that the platform is more accurate than legacy OCR technology, and invoices can be processed in a matter of hours.
Key to the success of any automated solution is the availability of custom features, including support for unique business rules to promote compliance. And while faster invoicing and automated data capture are essential to accelerating B2B payments in the market, Hatfield emphasized the importance of the broader implications of seamless invoicing, payments and movement of data in the freight and logistics market, from compliance and fraud risk mitigation to quicker access to working capital and a more holistic view of business spend.
“Using CloudTrade, they can process files and payments faster than ever before, but more importantly, identify and capture incorrect spend from the detail on complicated invoices,” he said.