In the process of getting goods from A to B, the A is pretty important. The B is quite important, as well. But the bit in the middle – the ‘to’ of ‘A to B’ – is the vital link between them and yet is easily overlooked. Depending on the nature of the business, shipping costs could easily range between 3% and 12% of revenue and yet it is “a forgotten cost”, says Gráinne Fennell, product manager of freight payment solutions at Elavon Freight Payment. “It is a large cost item but people just take for granted that the goods have to go to wherever they need to go to in order for you to be able to sell those goods.”
That wide range of costs reflects not only the difference between high-volume shippers such as retailers compared with software companies, for example, but also the complexity of the shipping arrangements: lorry-loads of fashionwear need to be treated with care; packages of pharmaceuticals may need to be shipped under strict conditions of refrigeration at specific temperatures with absolute assurances of tamper-free handling – and audited all the way through.
Cost and complexity soon mount up. And then there’s the not inconsiderable issue that the carrier needs to be paid – but neither shipper nor carrier have traditionally given very much thought as to how to do even that seemingly straightforward task in a way that adds value for both sides.
Research shows a clear correlation between the view that shippers have of the freight audit and payment (FAP) function and how they manage it. American Shipper recently found that only 46% of shippers using manual freight payment view it as a strategic process, while 56% of those using systems-based arrangements do think of it as strategic – as do 65% of those who outsource.
Dublin-headquartered Elavon, owned by US Bank, aims to reduce shippers’ freight costs by automating a manual process, giving insight into the data that is otherwise all but invisible with a paper-based system, and by offering finance options that enable shippers to pay their carriers more quickly while at the same time hanging onto their own cash for longer.
Connecting the physical movement and the financial
“We’ve been operating here in Europe since 2000 and our services are fully-automated, fully traceable for auditing and of course compliant with the European Union and national regulations,” says Fennell (pictured, right). “We’re regulated by the Central Bank of Ireland and by the ECB as well.”
A growing number of businesses are, of course, adopting some kind of early payment platform for many of their suppliers. It may seem odd, therefore, to have a separate early payment programme aimed specifically at paying their carriers. But service providers such as Elavon can have a role to play because they are “connecting the physical movement and the financial piece”, Fennell says. “A lot of people make sure that they are financing on the goods side and then where we come in is to make sure that the end-to-end process of your transportation is also taken care of, including the finance perspective.”
Traditionally, she says, the corporate procure-to-pay focus has been on the goods themselves. Perhaps the shipping side was just too paper-heavy and messy: Fennell recalls seeing a freight invoice amounting to a thousand pages. “All the information that was on that was required to transport those goods from A to B,” she says. “That’s exceptional, but it is true: I held it.”
Slowly, surely – and spurred on in part by the European Union’s e-Invoicing Directive – companies are increasingly looking for efficiencies in hitherto unexamined parts of the business and realising that automation in their freight department could yield considerable benefits. “Companies are trying to find the best way forward in e-invoicing and digitisation,” says Fennell.
Insight into invoice data
The process cost benefits of using an electronic platform seem obvious. Perhaps only a little less obvious are the audit benefits. Many businesses have “no idea” what’s on their freight invoices, Fennell says. “Without e-invoicing that’s quite difficult to do. Without the digitisation it’s such a manual effort. So to have that information, getting it right first time, having it flow right through the system – it is quite a large impact for customers.”
With digitisation comes much greater insight into the wealth of data buried in all these invoices. For example, an electronic platform could flag up that it would be two days quicker to ship goods to a particular warehouse by going via Italy rather than Rotterdam – taking two days off the inventory component of working capital and enabling goods to be sold two days sooner.
In another instance, a shipper may be using express premium services, unaware of the considerable savings that could be had by holding off for 24 hours and filling a pallet instead of shipping smaller packages. “It’s all about the analysis and understanding what’s in those pieces of paper that make up an invoice. That’s a powerful tool to have in this industry,” Fennell says.
As for payment of shippers, Fennell recalls one time in her early days at Elavon when she received a call from a carrier who said he had a problem: the money owed to him had been paid into his account. “I thought, ‘That doesn’t sound like a problem.’ But the person at the other end of the phone said it normally takes 120 days before he gets paid. Then I said that the shipper had joined our system which means that if the invoice is correct it gets paid immediately. Then he said, ‘Well, what do I do with the money?’ That’s a question I really couldn’t answer!”
Turning a cost centre into a profit centre
Adrian Samuel (pictured, right), regional sales manager EMEA at Elavon, points out how cash-intensive the carrier industry is. “The owners have to have cash to pay their drivers, to fill their trucks, to service them, to change their tyres,” he says. “Looking after their cashflow and getting their money promptly is the difference between paying their drivers on time and having to go to them and say, ‘Sorry, but our main account hasn’t paid us when they should have done.’ You can imagine what the knock-on is to the customer.
“The last thing the customer wants is for the carrier to be short of money because the goods aren’t going to be delivered. Your supply chain is only as good as its weakest link and so it is in everybody’s interests that it be financially strong,” says Samuel.
But transport companies, he adds, have not necessarily been very sophisticated in the way the fund themselves. Factoring has been quite prevalent – “and yet supply chain finance of the sort that we offer is far more attractive financially than factoring. Our platform ensures that the invoices are correct and then the carrier is paid early and the shipper pays us back on terms. We can even extend those terms with the shipper as well.”
“You can turn a freight cost centre into a profit centre,” says Fennell. “That comes from using the data to your advantage, the audit and then the working capital aspect.”
Fennell recalls visiting a client and asking him, what happens if he needed a particular invoice? He showed her a room “the size of a football pitch”, full of boxes upon boxes of paper invoices. “I said, ‘What if it’s not there?’ ‘You cry,’ he said.”
Adrian Samuel will be a panellist in a discussion group on operations at the SCF Forum 2017, taking place in Amsterdam on Wednesday, 29th November at the Beurs Van Berlage.
See scf-forum.com for more information and to book your place.