A freight bill audit is one way to improve transparency and trust between shippers and carriers. In a perfect world, freight audit services become unnecessary. Every invoice is filed correctly the first time, everyone arrives on time for all deliveries, and everyone is happy with the bill at the end. Since we don’t live in a perfect world, we need systems in place to help sort through mistakes when they occur.
Freight bill audits are services that ensure original price agreements between shippers and carriers are followed. Freight audit providers may compare shipping records such as initial quotes and final bills to check for mistakes. An invoice audit through a 3PL can also provide useful logistics data for companies to examine.
It’s important for companies to realize what freight audit services can do to protect profits from potential and actual errors.
At its core, a freight bill audit service will double-check pricing agreements between shippers and carriers for accuracy. Mistakes happen, but a freight audit service will make sure they are caught and rectified.
An audit may review all documents involved in the shipping process to check for accuracy. Information subject to an audit includes:
Inaccurate data on these forms may negatively impact pricing for both the carrier and the shipper. When mistakes are discovered after the fact, additional money and resources are spent to fix the problem. Administrative costs for invoice processing go up and make things even more expensive.
Reliable and in-depth freight audit and pay services can spot these mistakes before they have a negative impact on your business.
Freight auditing services become necessary as your business grows and the volumes you work with increase. Small businesses that handle their shipping needs in-house and work closely with their chosen carriers may be able to audit their own invoice records.
In a larger business, the DIY approach just can’t handle the volume and complexity. Automated technology is used for order forms, invoicing, and even payment processing. These additional moving parts, even when automated, increase the chance of mistakes.
It doesn’t mean that your business is doing anything wrong, or that your chosen carrier is. Freight invoices can be extremely complex, especially if a variety of goods are being shipped together. The rise in LTL freight drives part of this.
Thanks to improvements in technology, order processing and invoice generation take much less time and money than they used to. However, automatic processes still need people to oversee them, and people make mistakes.
Automated services help prevent errors, but they don’t catch everything. Different studies show companies reporting anywhere from 3% to 25% of their invoices containing errors that resulted in profit loss.
The more automated the system, the fewer errors there were. To calculate the total value of the error, you would need to add the money lost to the money now needing to be spent to fix it.
The mistakes picked up by a freight audit process may seem small - maybe a five to ten dollar mistake on an invoice. Across five invoices it’s about a $100 loss. If you only ship five times a month or the profit you generate more than covers the loss, finding the mistake might cost you more than fixing it.
However, as the volume and frequency of your shipments increase, so does the likelihood of higher value errors. All companies operate with a specific margin of loss in mind and freight audit services realize that. There is a fine line between acceptable loss margins and profit hemorrhaging that needs to be defined.
Consider this simplified breakdown. If you have 500 invoices coming in per month and they each have a $5 mistake, that’s a $2,500 loss every month, just in profit. Over the course of a year, that’s $30,000.
|Value of Error||Monthly Invoices||Money Lost Per Year|
The chart above assumes that an error would be minor and consistent across all invoices. The reality is that some mistakes will be bigger, and many invoices will have no mistakes at all. Busy months will see more shipments generated and perhaps more mistakes due to the rush.
The point is that mistakes will happen. Auditing solutions make it possible for you to better prepare for when that occurs.
As a business, outsourcing your freight needs is part of growth. With freight costs going up, you want to make sure that you aren’t giving away funds that could be going into your pocket.
Finding ways to reduce freight costs means getting creative with your solutions.
Freight invoice auditing can find mistakes that originate with the payment company or the carrier. Like most industries, freight audit providers have streamlined their processes through innovative technology. Manual review is labor-intensive and the cost savings often weren’t there for many smaller companies.
New software can analyze and track the complex documents generated for freight estimates and invoices. Once accurate values for factors such as delivery rate, tariff, fuel changes, and more are made, they can be compared with current invoices. Discrepancies are found, verified, and corrected.
If done with time, the errors can be fixed before additional fees are generated by either party.
Some invoice mistakes are more common than others, especially ones that rely on human input. Freight invoices are complex because of the variety of services that can be customized and the details involved. That same variety also raises the chances an error will slip by.
The most common mistakes found by a freight audit service involve:
Finding and dealing with these errors before they leave an accounts payable office will save you money in two ways: It will prevent the loss of possible profit and save you on the administrative costs of fixing it when the mistake gets reported.
Other mistakes that are less obvious but can cost you just as much money can also be found through invoice audit services.
Despite the common saying - sometimes numbers do lie. A reversed number or confused weight standard can create multiple issues. Numbers getting swapped around in a quantity count can throw off weight and density calculations. Imports coming from overseas may have weight recorded in kilos that needed to be converted to pounds.
Mistakes like these may originate with the company requesting carrier services or the carrier itself. They are problematic because if they aren’t caught in time, they get passed on down the line. With each new part of a transaction, the mistake may have more impact. An automated invoice will only be as accurate as the information provided.
Line items prone to mistakes include:
Errors in any of these items may generate additional fees for the shipper. If the mistakes are due to an error on the payment company’s side, the carrier isn’t likely to be forgiving. Should the shipper try to recoup some of the loss by charging their clients, they may lose customers who don’t appreciate the additional fees.
Any carrier that makes repeated mistakes is unlikely to continue being hired. Such is the power of customer reviews. Additionally, a lack of proper documentation on the part of the shipper may result in fines from the FMCSA (Federal Motor Carrier Safety Administration).
When an auditing service picks up on these mistakes, there is a possibility that you can find the root of the problem and fix it, thus preventing the mistake from happening repeatedly.
Provided that all the original data is correct and the correct number of items is delivered to the correct location, time may still be an issue.
Freight audit services can’t change the time or manage your production schedules, but they can track how much time goes by. If a carrier charges you a detention fee for causing delays, you want to make sure it's accurate.
Detention fees are applied when carriers have to wait on packages that were meant to be ready. LTL or expedited shipping orders need to be strict on time because they may be carrying multiple deliveries and need to fulfill them within a certain time frame. It’s common for a detention penalty to be agreed upon beforehand as part of the contract. Carriers may charge a flat rate or an hourly fee for delays.
Audit solutions can find errors in the amount charged or in the number of hours said to have been delayed. If the detention fee is $75 for every hour and you have a three-hour delay, the correct penalty is $225. Now imagine the fee is entered incorrectly as $175.
|Detention Fee||Time Delay||Paid by Shipper|
Errors like this multiplied across a few different invoices may quickly add up to several thousand dollars. The same can be said of errors in the time record.
In that instance, the detention fee remains the same, but the number of hours is misrecorded. Instead of paying for three hours, you get charged for eight hours.
|Detention Fee||Recorded Time Delay||Paid by Shipper|
With either mistake, the shipper ends up paying a significant amount beyond the agreed-upon fees. While good recordkeeping from the start and well-trained employees can reduce the frequency of these, it's nice to know that a freight audit and payment service is going back and checking again.
As the shipping industry continues to face supply chain problems, delays are going to happen. Logistically, it’s one of the profit losses that need to be accounted for. However, that doesn’t mean that you should have to pay more than the fair share.
Whenever drivers need to do more than just drive the truck and do a basic delivery, there are accessorial charges.
Many times they take the form of:
These are just a few and you should always check with your carrier for any fees associated with them.
If you routinely ship with the same carrier and use the same services often, they may get added onto invoices automatically. While a time-saving process in some instances, it might also cost you money. Charges added on to shipment invoices when not needed or that go unused are taking away from potential profit.
In other cases, you may get charged for something out of your control. Accidents on the highway may cause a truck to detour and add miles. Weather phenomena might create unexpected layovers due to road closures.
Some carriers absorb those costs themselves and others charge the shipper. Should your carrier charge you the additional miles or layover costs, you want to make sure it was actually required per the contract agreement.
This is especially true for fees added on due to weather events. A random lightning strike that fries a reefer genset at a truck stop is not the shipper’s fault. In this case, your freight audit savings may come in the form of a reminder to file a force majeure claim which covers Acts of God.
If you a carrier wants to add on the cost of a new genset, an invoice audit service should flag it.
Any company can hire or request a freight bill audit either through an independent auditing service or through a 3PL. However, the size of a company does impact the possible ROI (return on investment).
Freight audit services are most commonly requested by companies needing to ship large volumes of freight and merchandise on a regular basis. These are often companies involved in the mass manufacturing of construction hardware, medical supplies, or other consumables that ship items out daily or weekly. Food processing centers that need to distribute fresh products around the country would also fit this category.
In other words, the amount of money earmarked for freight spending is significant. Creating an in-house freight department is costly and the wider your shipment needs, the more money will be involved. Contracting a carrier service lets companies focus their efforts on making great products.
The more frequently you ship, the more invoices are generated, and the more errors may occur. Multiplied across thousands of deliveries year after year, your company could be losing out on thousands of dollars.
The money you can recover through freight bill auditing is related to how much you spend on freight shipping services. The industry average is a 3% - 8% recovery based on total freight spend.
Companies with an annual freight service budget of $8 million may therefore expect to recover anywhere from $240,000 to $640,000 a year.
|Percentage of Recovery||Profit Recovered|
Discovering that your company may be losing out on nearly half a million dollars each year is not a good feeling. If your annual freight spending is greater than this example, imagine how much money your company has left up for grabs.
A 3PL providing freight bill audit and payment services can provide you with invaluable insights into your business practices. This transparent view can help guide the development of business rules that govern supply chain management, employee training, and freight spend.
Freight documents have information concerning:
An in-depth look at this data may reveal weaknesses you can improve on. Armed with such data, you can adjust current practices and predict where future efforts need to be concentrated. You may even be able to consolidate some shipments to save time and money.
Ready access to data allows your company to embrace business intelligence practices and make decisions based on real numbers. Continued audits will reveal how your decisions are then impacting company performance.
With a business to run and profits to make, you can outsource your freight bill audit and payment needs to trusted 3PL providers. USA Truckload, powered by R+L Global Logistics will work with you for all your shipping and freight needs as your business grows.
We ship products all across the United States and we do it so your products get where they need to be safely and on time.
Our services include:
Trust your freight needs to a company that’s been focused on doing things right from the beginning. Get a quote for services today and see what USA Truckload and co for you.
R+L Global Logistics
315 NE 14th St., Ocala, FL 34470