Why Should You Audit Your Freight Invoices?

By June 14, 2018 Invoice Auditing, News
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As a business, your first priority is to make sure that the correct product gets to the customer on time, thereby developing trust between your company and consumer. The next priority, then, should be making sure it gets there in the most cost-efficient manner possible to maximize your company’s bottom-line. There are several factors that influence your company’s bottom-line, but one not to be overlooked is the cost of shipping.

Factors That Affect Shipping Rates

Rates in the LTL industry are very complex. They are calculated by a range of factors including mileage, cost of diesel, type of product being shipped, as well as other fees associated with the pickup and delivery of your product. Some of these fees and charges are negotiated with the shipper, but carriers can add new charges or increase existing ones at any time. For this reason, it is very difficult to track a company’s freight bills to ensure that they are accurate.

Making matters more difficult is the fact that a company almost certainly uses more than one carrier, and each carrier’s invoices are presented in different formats. With potentially hundreds of items being shipped each month, the task can become challenging to manage. Errors will occur, and when those errors are undetected, the company’s bottom-line is impacted.

Outsourcing Freight Invoice Auditing

For all of these reasons and more, auditing each and every freight bill is necessary to ensure charges are legitimate and justified. The simplest and most cost-effective way to audit your invoices is to outsource with an experienced provider.

A freight audit company, such as Shipware, is equipped with the tools, expertise, and access needed to monitor all freight invoices and resolve any discrepancies. Not only that, but a good freight audit company utilizes technical data and analytics to interpret the most effective shipping routes, market trends, forecasting outlook, and strategies that will help lead to substantial savings.

Using this intelligence, a company is equipped to make solid business decisions to maximize their transportation tactics. Another benefit of collecting this data is that it becomes a very useful tool when negotiating with carriers – supplying leverage to garner better terms and rates. These are features that are not easily available when handling a freight audit as an accounting procedure. The insight obtained from such pertinent data is crucial in maintaining a competitive edge and anticipating market trends.

In-House Auditing

If a company decides the best course of action is to handle the invoice audit internally, there are several things to consider. For one, a dedicated and well-trained staff will need to focus on handling all the freight invoices with a keen eye for detail and must be able to cross-check every line with the contractual terms of the agreement. Variable and accessorial charges must be deciphered and validated, and data must be gathered and stored for analysis.

Additionally, the bill of lading and the freight bill must be properly filed and advisably consolidated into an electronic system, and any mistakes, overcharges, or errors must be submitted as soon as possible to avoid forfeit (within 180 days according to 49 US Code 13710).

The cost of a company to process a freight bill audit internally has been estimated to be about $11-$12 per invoice. Therefore, if the audit does not produce adequate savings, the cost of processing the freight bills in-house could work against you.

Freight Bill vs. Bill of Lading: What’s the Difference?

To begin to comprehend the audit process and what to look for, you must first understand the difference between a freight bill (or invoice) and a bill of lading. A bill of lading is a legal document given to the carrier which outlines the specifics of the shipment, including the exact weight of the shipment, the value of the shipment, and a detailed description of the product(s) being shipped.

The bill of lading is a legally-binding document between the company (or provider) and the shipping company. Therefore, it is vital that all the information is accurate and nothing imperative is omitted as it outlines the original service agreement, provides proof that the goods have been loaded and shipped, and can be used as a title of collateral for the buyer. If there are any inaccuracies in the bill of lading, a legal dispute could occur.

A freight invoice is not a legally-binding document, but merely reflects the original accord to provide clarifying information and includes any supplemental charges.

Most freight bills include the following:

  • Names and addresses of both the consignor and the consignee
  • Purchase order or reference number
  • Date of pickup and delivery
  • Origin and destination of shipment
  • Description and quantity of shipped items, including freight class, weight and value of items
  • Shipping rates
  • Accessorial charges
  • Total Charges due, including special instructions
  • The route of each carrier and any transfer points through which the shipment travelled
  • Signatures by the carrier and receiver to confirm the delivery

The freight bill and the bill of lading work together to give all parties a clear understanding of the service agreement between shipper and carrier. Where the bill of lading is focused on the original agreement between the companies, the freight invoice constitutes the financial aspect of the arrangement and details the conditions on which the charges were applied.

Freight Bill Auditing Procedure

The audit begins when the freight invoice arrives either manually, via email, or through EDI (electronic data interchange). When analyzing the freight bill, comparing it to the bill of lading is a good place to start, but it doesn’t give you the entire picture.

Other factors to inspect are:

  • Discount Verification: do your charges reflect any agreed upon discounts?
  • Any math errors made by the carrier.
  • Is this a duplicate invoice and therefore have you been charged twice?
  • Was the wrong party charged?
  • Did the shipment arrive on time? If not, are you guaranteed a refund?
  • Incorrectly charged accessorial fees
  • Correct calculation of taxes and/or tariffs.
  • Correct application of mileage.
  • Description or NMFC freight class classification error.

Overcharges can happen in a number of different ways, and a thorough auditor must know what to look for. Pricing in the LTL industry is complex, and it is easy to make a mistake or neglect prior service arraignments. Your freight bill auditor’s goal is to make sure your company pays only for the charges they owe.

Dispute Procedure

When a mistake is found, immediate action must be taken to recoup the charges. Remember, the US Code states that “A shipper must contest the original (freight) bill or subsequent bill within 180 days of receipt of the bill in order to have the right to contest such charges.” A carrier may opt to pay a claim beyond this period in good will but is not required to do so.

  • Documents for filing a claim include:
  • Original paid invoice
  • Original bill of lading
  • Weight certificate if the claim is based on weight
  • Agreed upon tariff that was not applied to bill
  • Any other information that supports the claim

If you choose to outsource, your auditor will contact the carriers on your behalf and provide the necessary documentation for your claim. The carrier will then issue a corrected invoice.

Because of the complexity of the LTL industry, it is easy for errors to occur. No two shipping bills are the same, even if the same product is shipped from the same city to the exact same destination. A firm strategy for Freight Bill Audit and Payment (FBAP) is necessary for any company to ensure that they are receiving the correct price and are never overcharged.

That is why most companies choose to outsource their FBAP to an experienced vendor. A freight bill and audit company will provide you with peace of mind knowing that your freight charges continue to remain legitimate at a fraction of the cost that it would require to conduct in-house.

Not only will the audit and payment of freight invoices be one less burden your company will need to concern themselves over, but the intelligence a provider includes in their service is invaluable. Detailed analytics specifically created for a company’s shipping patterns will become the basis for a durable transportation strategy – adding a competitive advantage and improving cash flow.

Using data will unlock cost-saving measures, provide leverage in negotiations for better rates, and give you the confidence to make better long-term business decisions.

Shipware

Author Shipware Admin

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