It would be nice if every freight invoice was accurate, and the shipper could feel comfortable paying the bill with no doubts that the amount shown and the details on the invoice were all correct. Unfortunately, that’s not what happens. It takes time to learn how to read a bill of lading or shipment invoice. There are bound to be mistakes made in the beginning. Depending on who you ask, anywhere from 10% to 25% of all freight bills contain errors, and those billing errors likely aren’t in the shipper’s favor. Even if they aren’t deliberate, mistakes increase freight costs and affect the supply chain bottom line.
There are remedies for this – freight auditing – and even companies that don’t have in-house freight auditing expertise can benefit. This guide will take you through the benefits of utilizing freight audit software and how it can help increase efficiency.
What is a Freight Audit?
A freight audit is the process of analyzing a freight bill to make any necessary adjustments to ensure its accuracy. This carrier invoice reconciliation compares the invoice against the agreed-upon terms and the services rendered and received, ensuring the amounts and conditions charged for are proper. Examples of freight cost elements can include:
- Freight rate
- Transportation cost
- Shipping weight
- Accessorial charges
- Freight classification
- Delivery guarantees
The freight audit provider should also verify the bill isn’t a duplicate invoice and hasn’t yet been paid.
Given the high percentage of organizational and logistics costs relating to freight shipping in the supply chain, freight audits are a great way to control the logistics of costs and lower unnecessary spending.
The freight bill audit process provides much more than just marking errors and paying less. Given the data available from the shipping invoices and payments, shippers can utilize this information for their own benefit, which makes it a value-added process. Shippers can glean insights, leading to other potential business process changes. The audit is more than a box-checking exercise – it’s a cost-savings measure and form of business intelligence.
What’s Involved in the Freight Audit Process?
An audit can be manual, automated, or a combination.
Manual Freight Audit Process
Manual audits are time-consuming, and it’s easy to miss errors because the work is tedious and challenging to compare and remember. The higher the number of shipping invoices, the less sense a manual audit makes. With the manual approach, it’s more likely that batches of invoices will be randomly checked, and that leaves room for mistakes to slip through. The manual audit is only as good as the person conducting it. It also involves an opportunity cost, as the person conducting the audit could be working on other priorities, especially if done in-house.
Automated Freight Audit Process
Automated freight bill audits use software. Whether you have in-house software at your company, or an auditing company uses their own software, auditing software provides more consistent results, as long as your version receives necessary updates. Software systems can be integrated electronically with the freight carrier, making the freight auditing process and recovery easier and more efficient.
Combination Freight Audit Process
The combination approach allows the bulk of auditing work to be completed by the software. Any exceptions or problems are left to be reviewed by a human. If errors are identified in any of these approaches, the company or software would contact the freight carrier to get a corrected shipping invoice or recover the invoice discrepancy amount.
Selecting the Right Approach
The approach taken might depend on your company’s shipping volumes. Shippers with a handful of invoices per month may be fine going the manual route, if you have someone qualified to review them in detail who can follow business rules. For those with more invoices and shipments, or those dealing with multiple carriers, it may be better to outsource to freight audit services. This can save companies labor, time and money, especially considering that the companies offering these services have the expertise to catch things others might not see. The goal is for the service to not only pay for itself, but pay dividends beyond that.
A freight audit company offering freight payment and auditing services are set up to do so efficiently. They have processes and business rules in place, automation to handle the bulk of the audits and knowledgeable staff to check any flagged invoices manually. Given that they have many clients, they’ve seen it all, and understand variations between the carrier invoice and the language they use that might differ between companies. They can receive the invoices directly from the carriers and enter them into their computer system. This provides visibility into the bills for the software and for the human auditors reviewing them.
Ideally, a shipper or their freight invoice audit company can connect the auditing solution to the transportation management system. The transportation management system can offer pricing and quoting information to match the invoices of shipment purchases, connecting the dots for any variance.
Freight Pre Audit and Freight Post Audit
Pre audits are completed before paying the invoice. If discrepancies are found, they are clarified and resolved before payment is made. While paying invoices, the costs can be allocated by categories or by business rules.
A freight post audit is completed after paying the invoice on the shipment. They These audits can be done weekly, monthly, or in batches a few times a year. If discrepancies are found, the company (if doing it themselves) or the freight audit services file claims for repayment.
Even if pre audits are done, a more extensive post audit can provide an additional freight post audit analysis using a larger selection of invoices. If a carrier makes a mistake on one invoice, the same mistake may be made on other invoices.
That form of business intelligence can include an understanding of what it costs to use a certain freight forwarder because of shipping rates, and whether some carriers are charging higher surcharges or accessorial fees. For example, you could help to identify a reaccuring, but inaccurate UPS late payment fee, saving you time and money. This leads to understanding that the information found can help with future freight carrier negotiations, as data and visibility are money.
Claiming Freight Audit Payment
About 60% of U.S. companies outsource their freight audit payment services. That says something about the value it brings to a business. It makes sense that companies offering freight audits often pair it with freight payments, making it a freight audit payment service or considering them freight payment companies. It makes sense to combine the actions, as the auditing and payment process can be streamlined. Your company doesn’t need the specialized personnel to handle invoice approval or carrier payment. Their efforts can be better used on in areas in which they are an expert. If there is company turnover, no additional training is needed for your in-house role.
Freight payment companies or a third-party payment solution company can audit the invoice before paying it. Payment companies save steps and potentially money upfront, and the shipper doesn’t need to buy auditing software.
Outsourcing Your Freight Audit
With UPS and FedEx alone, more than $2 billion in eligible refunds goes unclaimed. That’s because carriers may offer shipping guarantees, and many shippers don’t know they exist or don’t take advantage of them. It’s time-consuming and confusing to keep up with an invoice audit and freight auditing company. Some companies let this slip by the wayside because it’s not a priority. That is an expensive mistake.
Shipware’s parcel and freight audit software is a proprietary system that typically saves our clients 1% to 9% of their total invoices. We’re able to automatically claim any eligible refund that our customer is entitled to, without the shipper having to get involved. We can save companies money by auditing and claiming eligible refunds for UPS, FedEx and LTL shipments, crediting the discrepancies back into the customer’s account. The process only involves connecting your carrier’s online billing account to our software. We audit the invoices for 65 points of failure, some of which result in a full refund.
There’s no software to download or install. There are no invoices to upload. Shipware’s service runs on our own system, in the background. Once your online billing account is connected to our software, the audits occur without you thinking about it, and refunds show up in your account automatically. This process costs nothing out of pocket – we only get paid if you save money and recover money from mistakes made by the carrier invoice. We take a negotiated portion of those savings.
To learn more about our parcel and freight audit software services, with no obligation, contact us online.