Handling the massive task of processing, organizing, auditing, and paying carrier companies to deliver your goods on time is not only time-consuming and requires a dedicated internal staff, but the opportunity to maximize your profit margin through data analysis will be missed if your company does not take advantage of the intelligence gained from the data.
Charges from transporters are negotiated and impacted by the oil market, among other factors. Without a firm grasp of all the intricacies of the shipping industry, an unquestioning company is at risk of being consistently over-charged. That is why many businesses turn to a freight audit company or a freight audit and payment company to handle the arduous undertaking of auditing their freight bills.
The Importance of FBAP
Freight Bill Audit and Pay (FBAP) is an essential component of any business, yet an astonishing 25% of companies do not utilize technology to pay and manage freight bills, resulting in a lost opportunity of cost savings.
The old school way of manually processing freight bills and hoping for the best will overlook many important and potentially expensive factors. With some companies shipping and receiving hundreds of shipments or more every month, paperwork (in different formats from carriers) can become overwhelming, and errors — either from human inaccuracy or a processing mistake — are inevitable.
In fact, some companies report as much as 1 – 2 percent on outbound shipments, and 2 – 4 percent on inbound shipments being miscalculated. That might seem like a small amount, but if your company is being regularly mis-billed, the costs add up quickly. Most companies do not have the resources to devote to auditing every single bill, so some will resort to a random check, giving the organization only a sample of the entire picture, and risking the forfeit of any lost capital due to overpayment, errors, or redundant costs.
Options for FBAP
It should be clear that a sound strategy should be considered a priority when it comes to Freight Auditing and Payment. Experts estimate that a company can expect freight charges to typically represent up to 10% of a company’s total cost, a significant enough portion to pay attention to and to apply the most effective tactics to minimize. So what options are on the table for a business to not only eliminate over-billing but also to take advantage of an ever-changing market?
The first option is a company can handle the FBAP internally. It will need a dedicated and well-trained staff to go over each invoice line-by-line, execute proper data filing, resolve disputes, manage optimal transportation routes, contact and negotiate price with shippers, have a pulse on market trends and oil pricing, and ensure that all charges made to the company are legitimate as the terms and rates continuously fluctuate.
Paper invoices run the risk of becoming lost, and a company loses the ability to analyze bills and data. The cost to a company to internally process and pay freight invoices can be measured at around $11-$12 per invoice. As well as the cost of employing man-power to oversee this laborious task, human inaccuracies or inattention to unforeseen factors may stifle even the most well-intentioned internal FBAP department. Also, the opportunity to file a claim for reimbursement for any error is typically 180 days and must be handled in a timely manner.
There is also software available for purchase which can calculate the most cost-effective way to optimize your shipping, commonly known as a Transportation Management System, or TMS. TMS software can be a useful tool in selecting the most effective carrier for your product, but like any computer program, it must be appropriately configured to suit a particular organization’s rules and values.
Furthermore, trusting these types of systems may lead to the potential for the same errors that will occasionally occur, as information entered into the system by hand. Rate increases must be implemented directly into the system while any caps, freezes or adjustments based on fuel, fees or other factors must be accounted for. Competent knowledge of the essential data to be captured is not the least of concerns when depending on an FBAP administrator in-house. A high level of technical skill and industry knowledge is required when employing any TMS system.
The third option is to outsource your FBAP with a freight audit and payment company. Devoting company man-power to the tedious effort of performing a proper freight audit will usually end up being more expensive in the long run. The $11-$12 spent to internally process and pay each invoice can be reduced by around 7-10% by utilizing a freight audit company and decreased further by approximately 4-8% in recuperation as a result of the audit of freight invoices.
Besides saving cost, a freight audit and payment company will provide a business with detailed analysis which will allow a company to interpret national and international markets and shipping routes. These crucial analytics add substantial value in addition to cost-saving measures. A company can leverage this data to make sound business decisions and are given an assurance that the most optimized network was utilized.
Freight Bill Auditing Process
When hiring a freight audit company to handle the essential responsibility of freight bill auditing, a specific process is followed to confirm all inaccuracies are noted and corrected, as well as to provide the client with a detailed evaluation of their shipping and receiving procedure based on ad hoc data. The process begins when the shipping invoice is received either manually or through EDI (electronic data interchange). The freight audit company will then verify the bill, inspect for errors or inaccuracies, and ensure that:
- The invoice has not been previously paid or is not a duplicate
- Is indeed the responsibility of the shipper to pay
- Any tariffs were calculated correctly
- Accessorial charges are legitimate
- All necessary documentation such as Bill of Lading and purchase order numbers are included.
If any inaccuracies are spotted, they will file a claim to be reimbursed for the mistake or oversight. If they are assigned to make the payments as well, they will handle the processing of the bill to ensure that it arrives as scheduled.
The essential data is then gathered into the system for instant analysis. This benefit of utilizing a freight audit company is the most advantageous element for most businesses, as through detailed interpretation of shipping data and trends, an organization can maximize trade routes, plan for future freight costs, and provide concrete data when negotiating terms and rates with shipping and receiving companies.
This is a feature that would not be available using simple accounting from an internal accounts payable department. The insight gained from such relevant and specific data is crucial in maintaining a competitive edge and anticipating cost-saving measures.
Not only are billing mistakes a common headache for companies but due to the nature of the industry, price is always changing. Fuel price has the highest inconsistencies, and shipping charges will reflect the cost of oil on the international market.
With the high fluctuation of fuel cost and the potential unforeseen expense of accessorial charges (charges made for executing services outside of standard pickup and delivery such as waiting-time, inside-delivery, storage charges, fuel surcharge, etc.), rates can sometimes change on a weekly basis. This leads to a complicated outlook when trying to evaluate future costs of shipping your product. A freight audit company will provide information and trends to supply a business with the ammunition to negotiate with the shipping companies and ensure the best rates.
These companies also serve as the primary communicator with the carriers, providing a service that can help maximize a productive working relationship and hold shippers responsible for agreed-upon terms. Freight bills are never straight-forward and are created individually for each client.
Therefore, two identical shipments of the same size and weight transported from the same city to the same destination can have very different rates. A freight audit company can negotiate on an organization’s behalf to ensure they are receiving the best possible price for the service provided.
Current Trends in Freight Auditing
Today, more and more businesses are shipping directly to consumers, bypassing the retail stores. Once a shipment reaches port, transportation cost depends on volume and distance. This is where the “Hub & Spoke” operations begin.
Think of it like the spokes on a bicycle wheel. The large central stations are the hubs (or DC’s – Distribution Centers), and the small local terminals at the end of the line are the spokes. Getting your shipment to its destination on time takes a well-coordinated effort.
Full Truckload Freight
Hiring a Full-Truckload Freight (FTL) to transport your goods will be costly; therefore most companies will capitalize on an option known as LTL, or Less-Than-Truckload. At the port or at the hubs, truckloads are consolidated to maximize a truck’s capacity.
If a shipment is between 150 – 20,000 pounds (or less than 14 pallets), LTL’s rates are much more desirable. Not only will a shipment be dispatched for a fraction of the cost, but LTL’s also have the added benefit of such services as residential pickup or delivery, inside delivery, and reaching destinations that may not be on an FTL’s mainstreamed express route.
Using a parcel company such as FedEx, UPS or the US Mail Service will be even more customizable, and will deliver packages that weight less than 150 lbs. Delivering through a parcel company is significantly more expensive than bulk freight, and must be factored into the cost. An auditing company can significantly reduce a company’s transportation expense by maximizing travel routes and coordinating with shippers to improve operational efficiency.
Where Do I Start?
Deciding on a course of action for an FBAP strategy takes careful deliberation and an evaluation of the specific needs and goals of the company. Documenting specific requirements and preparing detailed questions for an FBAP provider will help bring into focus a plan of action. Furthermore, it will help quantify the company’s ROI for hiring a freight audit and payment company.
Things to Consider:
- What are the company’s expectations when hiring a Freight Audit (and Payment) Company?
- What is the volume of transactions and what are the geographical locations that will need to be maintained?
- What modes of transportation will be needed, and can the provider handle everything under one umbrella?
- What is the time frame to process the audit and the payment of each invoice?
- How are payments handled?
- Is the process transparent for both the parent company and the carrier?
- How big is the provider’s reach across the globe? What specific relationships with carriers will your company benefit from? How do they communicate with the carriers?
- What is the FBAP provider’s financial strength?
- What software does the provider use? Is the data compatible across all platforms?
- How close to real-time are alerts and analytics?
- What types of analytics are available and how will that help optimize the supply chain?
- Is the FBAP provider investing in technology to stay on the cutting edge?
- Is the company’s data and intelligence secure from competitors?
- How will the company’s ROI be measured for outsourcing freight payment?
When examining how to best handle FBAP, consider that saving time and human resources has become secondary in recent years to the value of the data provided to increase business intelligence. By reducing costs and optimizing the supply chain, an effective freight bill management system can secure a competitive advantage that will benefit any business, big or small. With the high volatility of an unpredictable transportation sector, there is a great benefit to have a freight audit and payment company in your corner to ensure that every dollar you spend on transporting goods is maximized.