Freight billing is complicated, and there are so many moving parts that leaks in revenue can go unnoticed. Only 17% of freight invoices are accurate. Whether they are just small errors or more serious ones, they will add up. Freight bill auditing is not just about catching mistakes, but the information obtained from freight auditing and payments must lead to significant improvements in the freight billing process.
There are no two ways about it – freight invoice auditing is one of the most significant contributors to reducing freight spending for logistics and supply chain companies. If overbilling and duplicate payment occurrences are reduced, shippers can save 2-8% on freight spending. It pays to audit freight invoices but is it better to do it internally or outsource it? Let’s dive into why freight audit and payments are considered a complicated process before we get to that.
Why is freight audit so complicated?
Transportation charges are the most volatile part of freight bills. Transportation charges can rise and fall as the fluctuations in fuel prices directly control them. Freight charges are never straight forward, and two companies shipping a similar item to the same destination might not pay the same amount. Companies can be overcharged if they do not have a firm grasp of the complex freight pricing system.
To prevent overpaying, two levels of freight bill auditing is a necessity. Freight bills should always be pre-audited before making a payment. Even if using logistics software, it is still possible to make errors in the shipping invoice. Compliance with contractual obligations, applying taxes, and ensuring there are no overcharges. Many companies might stop at pre-audit because they might not have the resources to carry out a post-audit.
It is always advised to couple a pre-audit with a post-audit. A post-audit is carried out on a batch of invoices every few months. It gives a bigger picture of whether your account may have been overcharged. Post-audits must be scheduled, keeping in mind the statute of limitations for different carriers. For example, motor freight might have a limit of 180 days (from the date of delivery) beyond which you cannot claim compensation.
Challenges with auditing freight invoices internally
Auditing is rarely an exciting task for anyone in the transport and logistics industry, but someone has to do it.
While the business case is well established for the benefits of freight bill audits, most shippers find it too costly to develop an in-house freight bill and payment system. They specialize in what they do, and this expertise rarely extends to auditing freight and parcel invoices.
Training an in-house team can be prohibitive. Outsourcing is a more economical way to maintain sound financials. Partnering with a freight bill and payment company (FBAP) specializing in such audits makes more sense since the service fees are much less than the generated savings.
Freight bill audits can recover almost 8% of total freight spend. Across 10,000 products shipped, that is a saving of up to $1 Million.
The greater market demand, especially with the boom in e-commerce, workloads have increased, and the added strain on internal resources is a factor for companies considering outsourcing. So, while an internal audit team might sound good, the shortage of talent and the high cost of mistakes put pressure on already overloaded internal systems.
Whether your internal audit recovers overpaid freight charges or not, you still have to pay your team to audit each one of the invoices, and that is a mountain of paperwork.
An outsourced provider charges a percentage of payments recovered. That’s one of the most significant differences. – an in-house team has a fixed labor cost irrespective of the outcomes. On the other hand, with an outsourced team, the shipping company is not paying for invoices that have been correctly billed. An independent freight auditing and payment company will bill you only if it finds billing discrepancies resulting in chargebacks. This is usually a percentage of the chargeback recovered.
Studies show that internal freight bill audits are on average ten times more costly than using an independent service.
A freight bill auditor has an extensive checklist to detect overcharging errors. It is a time-consuming process and a benchmark for quality that few internal teams can match.
A few of these checklist steps are
• Did the discounts on the invoice match agreements with your carrier’s
• Duplicate invoices? This is one of the most common errors
• Check against promised delivery dates. If your carrier did a late delivery, you don’t pay.
• Were the accessorial charges incorrect for service provided outside of the standard shipping agreement?
• Did the invoices bill the correct mileage?
• Were the correct taxes added based on geography?
If there is any discrepancy, the recovery process kicks in. A claim will be filed with the carrier on your company’s behalf, and when a payment is made, you receive the check.
A cautionary note needs to be added here – not all companies audit the bills in the same way. Ensure that the process they follow is a good fit for your company.
If your company prefers to keep control through internal teams, you need to evaluate and invest in freight auditing software. Without the technology and expertise internally, freight bill auditing will not provide any significant chargebacks. Freight Audit software is expensive, and maintaining it adds additional cost. Large companies have the capital to do this, but smaller and mid-size companies will find it more cost-effective to leave it to an independent freight audit and payment provider.
Whether you decide on using an in-house audit team or third-party specialists, there is no getting away from the bottom line – you can make more money if you audit your freight bills.