Poor invoicing costs cargo airlines cash and customers

Poor invoicing costs cargo airlines cash and customers

It has been well known that air cargo carriers have struggled with invoice accuracy for years, with legacy systems with limited flexibility and inherent flaws in the booking process are contributing factors.

Only one in four carriers can adjust rates across six or more factors, including market, product, commodity, unit load device (ULD), weight/volume, and market fluctuations, according to an Accenture Air Cargo study. Almost 60 percent believe that rate calculation inconsistencies are the top contributor to invoice errors, a major source of customer dissatisfaction and revenue leakage. In fact, invoice errors reach “high” levels for fully one-third of carriers in the Accenture survey.

Considering that CASS shows that the direct air cargo carrier market topped $26.4 billion in 2016 and that data research company MarketLine shows that the global (direct and indirect) air freight market topped $101.3 billion in 2016, hundreds of millions of dollars are being disputed by customers.

However, invoicing issues are a double-edged sword. The data that we have collected from working with major global carriers over the past 12 years shows that invoicing issues do not discriminate.

Carriers with a high overcharge rate also have a high under-billing rate, while those with lower under-billing rates have fewer overcharges. Analyzing the data further shows that under-billings on average equate to approximately 2.5 percent of overcharges. The under-billing to overcharge range is 1.67 percent to 3.25 percent — this makes overcharges an extremely good indicator of under-billings.

Based on the current over-charge rate, the data shows that there is more than $250 million in revenue leakage that direct and indirect air cargo carriers face. While staggering, this number does not account for turnover relating to customer friction and distrust in the carriers’ billing capabilities. More than ever, there is a need for carriers to focus on protecting and improving the customer experience, while also guarding their revenue.

The customer experience will not be improved unless invoice accuracy improves. With carriers holding onto legacy systems, and using flawed, manual processes during booking and invoicing, the customer experience will continue to suffer. In some cases, carriers are using terminal management systems built by companies they acquired in the 1990s or early 2000s. They are then overlaying these systems with visibility, and billing systems, which were not designed to communicate with each other; broken interfaces and data integrity issues are compounding the problem.

Meanwhile, carriers are being inundated with invoice adjustments relating to overcharges, and it is become a major resource drain. Accounts payable auditing firms representing the customers seem to be the only ones benefiting from this massive invoicing issue.

Until carriers focus on why these invoicing issues continue to persist, and what process changes need to be made to fix the systemic issues, the customer experience will continue to be disrupted.

Invoicing errors are not a one-sided issue, yet there are very few auditing firms tackling under-billing concerns. As a result, customers have a strong advantage. They have the luxury of disputing overcharges while profiting from under-billings at the carriers’ expense. There is very little to no revenue protection for the carriers as most generic auditing firms don’t have the sophistication and resources to provide a revenue audit.

The air cargo industry has many complexities that make it unique, such as commodity-based pricing, numerous container types, and surcharges, and volatile rates that are constantly changing. Without the right technology and shipping knowledge, it’s difficult to hone in on the problems and isolate invoicing issues before they reach the customer.

There are very few firms that provide revenue protection services to air cargo carriers. It is a specialized field that requires adequate expertise, technology, and bandwidth. While revenue yields are improving, the customer experience continues to suffer. Specialized third-party revenue protection firms may be the only opportunity for carriers to recapture under-billed revenue, level the playing field with their customers, and ultimately improve invoice accuracy.

No matter the internal factors or issues that may be causing the problem, a sophisticated third-party revenue protection service can quickly identify the issue, protect the revenue and add to the bottom-line. As gaps are brought to the attention of the carrier, process improvements can be implemented that drive up invoice accuracy. Under-billing rates typically drop 20 percent after the first year and overall invoice accuracy rates improve, meaning there are fewer overcharges and less customer disruption.

Carriers are also benefitting from a faster quote to cash process, a reduction in the cash conversion cycle and days sales outstanding as they receive less and less invoice disputes and more on-time payments.

These results show third-party revenue protection services can recoup a significant amount of under-billed revenue, and ultimately improve the customer experience at the same time.

Mark Palladino is a revenue protection expert and principal of ARG LLC, which helps air cargo carriers prevent unnecessary losses. Contact him at mcpalladino@argglobal.net.