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The Freight Payment Industry-How It All Started

The freight payment industry was actually formed by a series of Banks when the transportation marketplace was heavily regulated. Motor carrier bills had to be paid within 7 days and rail bills needed to be paid within 5 days. To meet this requirement the banking community, shippers, and carriers formed what was known as The National Association of Freight Payment Banks. At that time the emphasis was on settlement of carrier bills within the regulated parameters for credit extension. If settlement was not made, the carrier was required by law to place the shipper on a cash basis. This was not an idle threat and large Fortune 500 companies would often have the freight held because bills were not paid on time.

With Deregulation of the transportation industry in 1980 this began to change. Credit terms could be negotiated between shippers and carriers for more reasonable periods of time.

Deregulation also ushered in an era of unprecedented competition among providers of transportation services. The market was open and a free-for-all with carriers being able to compete based upon price for the first time. Previously, motor carriers had been compelled to set pricing collectively through rate bureaus. This frenzy of discounting presented an opportunity. Per statute at the time, a shipper could collect on an overcharge from a carrier for up to three years after payment of the invoice on which the overcharge was detected. There arose a cottage industry of “post auditors” who were former pricing specialists for major carriers. They would work on a contingency basis whereby they would collect 40-60% of all overcharges recovered by their auditing the last three years of bills.  If they recovered no overcharges, they were not paid.  Clearly, in today’s competitive environment, engaging experts to manage the payment and auditing of your freight bills can have a positive effect on efficiency and your bottom line.

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