How Much Does It Cost To Pay a Freight Invoice

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How much does it cost to pay a freight invoice?
Preface
To benchmark their internal freight payables costs against outsourcing fees, companies frequently
ask potential providers to define the functional components of processing and paying a freight
invoice. To each component, a company's own productivity standards, labor rates, and allocation
methodologies are assigned.
The following identifies these detailed invoice processing activities by six cost categories:
Direct Labor Costs
Indirect Labor Costs
Equipment Costs
Postage and Supplies Costs
Administrative and Overhead Costs
Other Costs
In "Cutting the Fat from Accounts Payable", authors Tad Leahy and Ivy McLemore report:
"Typically, the accounts payable process represents the greatest opportunity for improvement in the
accounting function . . . The stakes are high: The average company processes 190,000 vendor
invoices per $1 billion of revenue, pays each employee $36,705 per year in salary and benefits …"
During the 90's, The Hackett Group and the American Institute of Certified Public Accountants co-
sponsored a benchmarking study of key corporate financial functions. Four hundred companies,
including over 100 major US corporations, participated in this study. In this same article, Leahy and
McLemore interviewed Mark Krueger, Vice President of The Hackett Group, a consulting firm in
Hudson, Ohio. According to Krueger, "The average company … processes 11,100 invoices per
person per year."
The math is straightforward: $36,705/11,100 = $3.31. That is, direct labor cost alone for payables
processing averages $3.31 per invoice. For potential providers, direct labor represents 32% of fully
allocated payables costs when indirect labor, equipment, postage, supplies, administration,
overhead, and other cost components are considered. (See below) We believe this ratio holds for
other companies as well. Applying this 30% factor then to the $3.31 direct labor cost above, yields
a fully allocated average payables cost of $11.03 per invoice.

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This average invoice payables cost is closely validated by IOMA's (Institute of
Management and Administration) "Managing Accounts Payable" publication. In its
late 90's Payables Benchmarking Survey, MAP notes:
"On average, it costs an accounts payable department $16.54 to process a vendor payment . . .
These figures may seem a little high. However, over 7% of the companies responding reported a
check-processing cost of over $50 … When the numbers were rerun, eliminating all who had entered
$50 or higher, the average dropped to $10.55 for vendor payments …"
In summary, your cost just to pay an invoice is probably $10.50 - $11.00.
FREIGHT PAYABLES COST COMPONENTS
DIRECT LABOR COSTS:
1) Incoming Mail Processing
a) Receive and open envelopes
b) Sort and distribute invoices
2) Pre-Data Entry Processing
a) Verify invoice liability (valid billing names/locations)
b) Assign general ledger codes
c) Calculate allocations for multi GL-coded invoices
d) Assign carrier codes
e) Assign optional accessorial charge codes
f) Assign optional microfilm index numbers
g) Establish invoice batch totals
3) Data Entry Processing
a) Key/key-verify payables data elements
b) Key extended data elements for transportation management reporting
c) Edit and validate key data elements
d) Research and reconcile exceptions; adjust batch totals for:
i) Edit and validation errors
ii) Duplicate, past due, and balance due invoices
4) Pre-auditing
a) Pre-audit invoices
b) Adjust invoices (key adjustment reasons, tariff authorities, and amounts)

5) Rate Database Maintenance
a) Interpret, key, and validate rates
b) Maintain rate database
c) Maintain tariff library
INDIRECT LABOR COSTS:
1) Checks and Report Control Processing
a) Balance daily control reports and distribute
b) Sort checks and remittance advices
c) Insert checks and remittance advices in envelopes; apply postage
d) Sort and file paid invoices and check remittance copies
e) File control reports
f) Balance and distribute other weekly and monthly payables reports
g) Balance and distribute other transportation management reports
2) Exception Item Processing
a) Process and return duplicate invoices
b) Process and return previously paid past due invoices
c) Process other miscellaneous returns
3) Microfilming/Imaging
a) Microfilm/image and index invoices
b) Microfilm/image issued checks and remittance advices
c) Microfilm/image paid checks from bank (front and back for carrier endorsement)
4) Customer Service
a) Support invoice status inquiries
b) Furnish carrier proof of payment
c) Furnish invoice microfilm/image retrieval
d) Furnish check microfilm/image retrieval - issued and/or paid checks

5) Other Support Processing
a) Reconcile paid and issued checks
b) Maintain Carrier File - adds, changes, and deletes
c) Maintain other validation files
EQUIPMENT COSTS:
1) Data Processing Hardware
a. CPU, terminals, disk, and printers for on-line and batch payables processing
2) Telecommunications - Voice, Data, Fax
3) Postage Metering Equipment
4) Microfilming/Imaging Equipment
5) Microfilm/Microfiche Readers
POSTAGE AND SUPPLIES COSTS:
1) Postage and Envelopes
a) Checks
b) Returns to carriers
c) Carrier and field location correspondence
2) Check and Remittance Stock
3) Microfilm Cartridges
4) Miscellaneous Forms and Supplies
ADMINISTRATIVE AND OVERHEAD COSTS:
1) Supervisory Overhead - all operational departments
2) Systems/Programming Support
a) Systems Modifications
b) Systems Enhancements
c) Systems Documentation
3) Software Depreciation
4) Personnel Training

5) Occupancy Expense
a) Property lease/depreciation
b) Furniture/fixtures
c) Utilities, taxes, and insurance
OTHER COSTS:
1) Bank Fees - Paid Checks
2) Lock Box Fees
3) Telecommunications Charges - between carriers, corporate, and field locations

How Much Does It Cost To Pay a Freight Invoice

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