Business Case:

Are you effectively managing your supplier payments?

A leading automotive manufacturer in Europe recently had a production stoppage at one of their factories due to the non-payment of invoices from one of their primary transportation providers. Deliveries were being held as collateral until the company paid their outstanding freight invoices, which totaled well into the millions.

With over 800 suppliers and the company having financial difficulties it was not unusual to experience a work stoppage according to a representative from the company. However, one must ask some key questions to determine if this issue could have been avoided or better managed to prevent a disruption to their supply chain. Did senior management have visibility to the criticality of the issue; how were supplier payments being aged and managed; did finance have the exact numbers for the unpaid invoices in order to properly accrue for this?

Outsourcing to a freight invoice audit and payment provider can help avoid or minimize these potential issues. A invoice audit and payment provider can create a centralized system that integrates freight invoices with a business payment system. This system allows you to take full advantage of individual invoice payment terms with all of your transportation providers. This process will ensure that payments are not made early resulting in a loss of funds (working capital) or late, causing several potential issues. See insert to right.

Stoppage in production
Being put on a cash only basis
Financial strain on suppliers
Damaged supplier relationships
Disruption to supply chain operations
Loss of discounts
Late payment surcharges
Provider refuses to pick up freight
Expediting unbudgeted for payments

Each invoice is electronically rated to ensure that the correct amounts are paid and this includes all of the individual line item charges. It is very common for some invoices to have multiple charges that include freight, fuel surcharge, accessorial charges and more. Once the invoices have been approved for payment, they can be aged based on the specific terms of each service provider. Improved cash flow forecasting is made possible by gaining visibility to invoices within 24-48 hours after receipt. Accrual reporting, which can be done by rating shipment files is another very effective method for projecting freight expense liabilities. However, shipment files must contain the necessary information required for the freight payment company to accurately rate each shipment.

Aging reports can also be developed that show the total outstanding amount owed to each transportation provider based on 0-30, 31-45, 46-60 day categories. Payments need to be made according to the terms of each transportation provider. Scheduling the payment time and when the clock begins can be based on invoice date, receipt date or ship date. The most commonly used of the three is invoice date. Many companies also measure the elapsed time between these dates. It's hard to pay an invoice on time if you receive it on day 28 and its due on day 30. That is why it is considered a best practice to capture and measure all of these key milestones.

All transportation provider terms are managed using business rules tables, which automates the payment process. Metrics and scorecards can be created and used to manage the supplier relationships to ensure that service level agreements are being met. Using scorecards to manage supplier relationships is considered a best practice. Payment delays can be a direct result of issues caused by your transportation providers. It is important to have access to this information in order to dispute legitimate reasons for payment delays. See insert to the right for some of the most common.

The incorrect rates were billed
Supporting documents were not provided
No purchase order number was provided
The invoice was rejected for non compliance to business rules
The invoice was denied and should have been billed to another entity
No proof of delivery was provided

Most companies are managing hundreds or even thousands of suppliers. And while all of them are important, there are some critical 'key' suppliers that need to be monitored more closely. In the previously mentioned business case, a major freight forwarder responsible for moving materials to a production plant should fall into that category. Without the proper visibility, alert mechanism or reporting tool, it is difficult if not impossible to mitigate potential payment issues to key partners.

Transportation providers are a key link in all supply chain networks and it is important to manage the relationship in "win win" environment. This requires a collaborative effort when disputes arise related to late payments, invoice billing disputes or delivery issues. Nvision provides a web portal that provides visibility and transparency to all parties for a timelier resolution of issues. If a transportation provider bills incorrectly, they will be notified by email of the issue so that it can be corrected. In addition, on-line access is provided to transportation providers for checking the payment status of invoices. Collaborating with suppliers is considered a best practice.

In today's difficult economic times and credit crunch all companies are looking for ways to preserve cash, improve working capital and extend supplier payment terms increasing their days payable outstanding (DPO). This is certainly a common theme and generally accepted best practice for most financial and accounting organizations. However, there is a limit to how far suppliers can be pushed, before they push back and the "fire drill begins."

Utilizing a freight audit and payment company can provide the visibility, oversight, transparency and controls required to effectively manage payments and mitigate potential issues to supply chain operations.

nVision Global Technology Solutions is a leading freight bill, invoice audit/payment management services company, offering enterprise wide supply chain solutions. As a global business partner, nVision not only provides a prompt, accurate freight payment solution but industry – leading information management services that help clients maximize efficiencies in their supply chain.