The excerpt below is from the publication A Guide to the
Financial Risks of Freight Payment Providers, which was produced by A3 Freight
Payment for the benefit of customers and prospects. For the complete
publication go to the Instant Access Materials in the A3 Freight
Payment Resource Library.
In the normal course of a freight
payment relationship, a freight payment company will receive refunds from
logistics providers on behalf of its customers. The refunds are sent to the
freight payment company because it is designated in the “Bill To” section of
the carrier’s system. That is typically the destination used by the carriers for
These refunds are triggered for many
different reasons. They can be due to duplicate payment of an invoice by both
the shipper and consignee. They can be due to cancelled shipments, which were
accurately invoiced and paid before cancellation could be communicated. They
can even be for something like COD amounts for merchandise paid by the
recipient of a shipment. Regardless of the reason, they do occur, and a
best-in-class freight payment company must have a solid process for their handling.
Refunds provide a double-negative
incentive to a freight payment company. First, they are a cost driver to the
company in terms of needing to process the refunds. Second, they are almost
completely invisible to shippers. If a shipper does not know that a refund is
due, he is not anticipating it. So, if a refund should fail to arrive from the
freight payment company to the shipper, he would be none the wiser.
Consequently, the freight payment company has two incentives to not process
refunds efficiently…they are costly, and no one is watching.
The A3 Freight Payment process receives
refunds and immediately deposits them into the Freight Payment Trust account.
The refunds are identified as belonging to specific customers, and the credit
for them appears as unapplied cash for those customers. An aging report is
produced to support the items.
Further, the customer’s database is
properly credited for the refunds with the proper accounting codes. This allows
the customer the ability to properly account for his freight and logistics
spend net of any refunds. If a particular refund is tied to a given invoice,
such linkage is made in the database.
Refunds are also an excellent source of
feedback information for the provider in improving the freight payment process.
Reasons for refunds are tracked by account management personnel, and with this
data, process changes can be made to eliminate the source of the refunds and
provide a more reliable process to the customer.
A3 Freight Payment clients are refunded
by means of a netting process. The client’s weekly Freight Funds Request will
reflect any credits granted for received refunds. The client will then issue a
net funding which takes such credit into account.
Refunds are a fact of life within a
freight payment process. A provider that does not have a strong control
structure for refunds creates potential exposure for lost or misapplied funds
for its customers. The refund process should always be part of the due
diligence review of a prospective freight payment company.