What is Parcel Auditing?

By June 25, 2018 Invoice Auditing, News
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The rise of e-commerce and changes in consumer trends are driving massive increases in parcel shipping volume worldwide. Between 2015 and 2017, global parcel shipping volume increased by nearly 50%. Over $95 billion was spent on parcel shipments in 2016 in US markets alone.

On an average day, FedEx can expect to ship over 14 million parcels to 220 different countries and territories, while UPS delivers another 19 million per day. That’s nearly 9.5 Billion shipments annually, between only two common carriers. Amazingly, almost all of these deliveries are covered by the carrier’s service guarantees. These guarantees are detailed in each carrier’s Service Guide. They ensure that a package will be delivered on time, without so much of 60 seconds delay for express services and one day ground services, or the costs and fees will be refunded in full. The companies are contractually obligated to repay expenses for undelivered services.

Parcel Shipping Today: By The Numbers

Today’s parcel carriers pride themselves on their rates of on-time deliveries, and shipping companies pay for these guarantees at the time of shipment, not the time of delivery. Mistakes happen, and, in reality, between 1 and 7 percent of all FedEx and UPS shipments are delivered late. A late delivery usually results in a violation of the Service Guide that the carrier has with the shipping company. Therefore, the shippers of each package are entitled to refunds on their shipping charges. That could amount to a savings of up to 7% of a company’s shipping costs per month! That is why parcel auditing should be an essential part of any company’s operations.

So, how does a company discover a service violation after delivery and recover the refund they deserve? To put it simply, most do not. While carriers will honor valid requests for refunds, it is the responsibility of the shipper, not the carrier, to review shipping invoices for errors and then submit these errors to the carrier as proof of a violation of the service guide. The carriers are contractually obligated to refund costs paid for service failures.

What is Parcel Auditing?

One thing that a smart business should not neglect is the last stage of the traditional shipping lifecycle. Parcel auditing is, quite simply, reviewing all of a company’s shipping bills and invoices to locate instances of overcharging and service failures due to late delivery. A business could see 5% decreases in shipping costs on these refunds alone. Parcel auditing would be considered a best practice and should always be done.

A proper auditing process will leverage software technology for a thorough audit of every charge, a refund request, and carrier credit issued. Every shipment should be reviewed for errors or violations of service standards. Carriers will issue refunds on service failures and overcharges, some of them including:

  • Late Deliveries: The parcel was delivered past its guaranteed delivery time and date.
  • Non-Shipments: The parcel was entered into the carrier system and billed, but never shipped from the shipping company.
  • Incorrect Saturday Charge: The parcel was supposed to be picked up on a Saturday, but was not.
  • Duplicate Charges: A parcel was billed more than one time.
  • Incorrect Address Corrections: The carrier charges fees for an address correction that was not necessary or was initially correct.
  • Incorrect Dimensional Weight Charges: The carrier used the wrong dimensions or applied an incorrect DIM factor.
  • Incorrect Rate: The carrier did not apply the correct discount which is stipulated in the shipper’s carrier agreement.

When a company finds a valid problem, the tracking number for that delivery and a request for refund must be submitted to the parcel carrier. When the carrier approves the refund request, the cost of shipment is credited to the shipping company’s account. If all service failures and overcharges are credited, that could mean a significant reduction in overall shipping costs.

In addition to saving shipping costs up-front, completing a parcel audit on all shipments allows a company to better understand where the carriers are failing to deliver on time. A manual audit is a costly, intrusive process that interrupts regular workflow and often results in a net loss due to labor cost versus what is actually recovered. But in modern shipping, effective audit technology can break down carrier invoices  into clear, essential performance indicators. Data collected through a parcel auditing processes will allow companies to better evaluate shipping costs, and to make much more informed decisions regarding carrier choice and shipping options.

Manual Parcel Auditing

Traditionally, parcel auditing would not be done at all. If an employee were tasked to each shipping invoice line-by-line, it would be challenging to identify all billing errors and oversights are certain to occur. As the volume of individual small package shipments increases so too does the number of invoices to review, as well as the complexity of various fees charged on top of base shipping costs. At a certain point, the number of work hours needed to process the information will cost more than the savings gained.

For an internal auditor working for the company to be cost-effective, they need to handle thousands of pages of paperwork, documents, and spreadsheets from various carriers and shipments. They would need to discover enough opportunities for refunds to not only reduce the costs of shipping for the company but to cover the additional expenses of hiring employees to do the labor-intensive auditing work. Due to the sheer number of shipments on invoices, human auditors can hardly expect to review 100% of the invoices hoping to find billing errors and service failures. This results in less than optimal returns on costs, as human auditors will not be able to analyze 100% of a company’s shipping bills. Not only does this effectively lead to fewer refunds, but it also results in limited information about the nature of all the billing errors and service failures. This is no longer cost-effective.

Software Assisted Auditing

As worldwide shipping volume increases and e-commerce drives small-parcel delivery growth, companies must recognize the need for innovative software and technology to optimize their operations and maximize profit while reducing costs. Parcel auditing software enables shippers to review their invoices electronically and compile data that a human auditor would not be able to analyze alone. This increased efficiency leads to increased refunds, as well as a reduction in tedious, labor-intensive analysis work.

It reduces the effect of human error. As the number of opportunities for refunds grows, so does the cost of shipping decrease. The company is also equipped with better data and information to analyze and optimize shipping methods that will reduce costs and maintain a competitive edge in the market. While returns increase and data is more readily available for analysis, additional labor is still required to implement new technology.

Outsourcing Parcel Auditing

What does a parcel audit company do? Basically, they do all of the work for you! They are equipped with a dedicated staff as well as the proprietary software and analytical expertise to recover the refunds you are entitled to.  

There are billing errors, overcharges, mistakes, and late delivered packages on every invoice. If a company can get back any amount of money spent on shipping, that means lower overall shipping costs. Small parcel auditing is the most effective way to receive money back efficiently, but it is clear that carriers do not want to make it easy for businesses to identify and receive the refunds to which they are entitled. But most companies do not have the resources to audit these deliveries themselves. Human auditors can scan through invoices, but this is expensive and prone to error. Large volume shippers should consider the benefits of outsourcing parcel auditing to professional parcel auditing companies.

An effective audit firm will have state-of-the-art software and a recovery team dedicated to identifying and recovering refunds from parcel carriers due to billing errors, service failures, and service guide violations, and, just as valuable, analyzing and reporting on massive amounts of data collected from these errors.

All of this is addressed, typically without any upfront costs whatsoever. In return for a percentage of the refunds, the parcel auditing company does all of the work. In contrast to other methods of reviewing parcel invoices, there is no risk involved in hiring a professional parcel auditing company. A qualified firm will identify and recover all shipping charges that would have otherwise been unnecessarily paid to the carrier. They provide the leverage needed for companies to hold their parcel carriers accountable for unmet service standards and ensure that the relationship between the shipper and the carrier is transparent.

Which Type of Parcel Auditing Should I Use?

Parcel auditing should be a regular part of every company’s operating procedure. However, the company will need to carefully consider the different options available to them.

Will the benefits of performing audits in-house outweigh the costs of hiring or training employees to undertake the auditing? Does the organization have the time and resources?

Is the company willing to part with a percentage of the refunds recovered if a parcel auditing company does all the work for them? Would the company be able to produce the number of audits and quality of analysis that a professional parcel auditing company provides?

Parcel auditing reduces shipping costs and proper reporting improves the quantity and quality of business intelligence, which should empower the shipper to make additional cost savings decisions. These benefits can provide  a competitive advantage to any company. The rapid growth of global e-commerce and development of shipping technologies, has created an increasingly complex web of fees, agreements, and guarantees. Specialized companies have filled the niche of parcel auditing to provide vital cost-saving services to small and large shipping companies alike.

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Author Shipware Admin

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