The order slip shows 5,000 lbs. but the bill of lading shows 10,000 lbs. shipping charges are billed for the first weight, but the carrier sends you an invoice for the second weight. Your company has probably experienced similar mistakes in freight charges.
It is estimated that 20 to 25% of an organization’s shipping invoices have some mistake or error, translating into higher shipping costs.
A freight bill audit is considered the best practice to ensure you don’t lose money. This checks and balances system permits the review of all shipping bills and identifies errors or discrepancies for correction in the billing system.
But what happens if the freight audit process itself is faulty?
Traditional manual freight bill audits are time-consuming and hampered by logistical and personnel drawbacks. Such audits are not equipped with the tools to deal with the freight industry’s common mistakes.
1. Duplicate invoices
On average, 0.1% to 0.05% of invoices paid are duplicate payments. While that may seem negligible, a small business with annual costs of $100 million would see a loss of $100,000 each year.
In the past, checks were issued after invoices were received. Today, it’s much hazier with the different automated payment options and other invoice delivery methods.
Most ERP accounting applications have checks to warn of duplicate billing. They identify combinations of vendor names, invoice numbers, invoice dates, and amounts. If there is even a small variation in even one of these fields, creating a duplicate invoice, tracking it down is like looking for a needle in a haystack.
Organizations rely on manual auditing to detect duplicate invoice payments. This makes them prone to the same human error that caused the problem in the first place.
2. Flaws in Base Rate
Shippers sometimes use old base rates as a guide for pricing freight rates. This continues today because carriers offer shippers discount programs on these outdated rates. However, data that is not reflective of the freight industry’s current realities can only lead to inconsistencies between quotes and invoices, errors in invoices, and disputed invoices.
3. Disparities in Classification
The shipment’s freight classification (NFMC) provided by the National Motor Freight Traffic Association (NMFTA) determines shipping charges. There are 18 freight sub-classes with varied specifications for density, size, stowage, and liability of the goods being shipped. Errors in classification can be costly for the shipper. Therefore, it is essential to identify the correct NMFC code to calculate freight charges appropriately. This calls for the in-depth knowledge and experience of a logistics professional who regularly reviews NMFC classifications to keep up-to-date with changes.
Although routinely checking bills of lading can help contain freight costs, doing so often requires trained staff to manage the process in-house.
4. Tax and tariff applicability
Calculation of freight charges requires taxes and tariffs to be added. This, in turn, involves applying the correct tax rates for state, federal, and global shipping.
International shipping means calculating taxes and duties due at the destination country’s customs point and must be paid before the package can be delivered.
With so many differentials, a lot can go wrong.
5. Shipping discounts
Shipping companies often reward businesses that frequently ship with them. Shippers can therefore negotiate lower shipping rates based on volume. However, inconsistencies in the application of discounts could affect the total cost. Keeping track of negotiated discounts and ensuring they are built into the freight cost reflected in the invoice requires a review system.
6. Taking cognizance of surcharges
The actual shipping cost includes surcharges. Surcharges, also called accessorial fees, can form a significant chunk of freight costs. For instance, peak season surcharges for packages and heavier items, emergency bunker surcharges (EBS), trailer repositioning charges, fuel surcharges, surcharges on freight shipped to crowded markets or remote areas. Incorrect surcharges require invoice review and correction.
Inaccurate mileage is a common error for shippers. An effective freight bill audit checks the mileage in the invoice against backup documents.
Besides the above, other elements that can lead to invoices errors include:
● Freight rate
● Transportation cost
● Shipping weight
● Delivery guarantees
How can shippers and carriers gain a competitive advantage and ensure cost reduction?
The answer lies in technology. A digital solution will automate many of the time-consuming manual processes in a fraction of the time. It will help shippers make better decisions that can save money otherwise lost by shipping and invoice mistakes.
Most importantly, it will verify that payments are correct before invoices are approved.
Data generated by automation makes it possible for companies to ensure process and profit optimization, reduce costs, improve efficiency, retain satisfied customers, and grow their customer base.
Advanced algorithms improve data accuracy, enabling cost effective carrier selection and obviating the creeping in of errors initially. The accuracy of data is ensured and validated by using deep data cleansing and sophisticated matching functions.
So now you know the importance of Freight Audit and we advice you to connect with an outsourcing partner who can effectively optimize your profit, reduce costs and most important they will retain your satisfied customer.
Connect with iTech today to know more about how you can effectively recapture lost revenue.