We all understand that people can make mistakes. But when those mistakes cost your business money – it can lead to significant problems. For those who ship products, data entry or billing invoice mistakes are leading sources of lost revenue. To reduce the potential of financial losses in shipping, many companies allocate resources to the auditing of freight invoices prior to submitting payment.
Freight auditing is a proven process to find data entry mistakes, make accurate changes to those invoices, and ensure timely payment to the carrier. However, beyond the financial benefits, there are several reasons why you should audit freight invoices – whether you’re a shipper or carrier. Noted below are three benefits for auditing freight invoices or allocating this important process to a proven 3PL provider.
There are multiple steps involved in auditing freight and shipping invoices ranging from verifying shipper and carrier info, reviewing the freight charges, inspect mileage, and determine if the correct surcharges and freight discounts have been applied. When a freight invoice has been inspected and mistakes are found, the root source is also typically determined. There are a few individual sections that can highlight the source of the error – so that all parties can review to reduce future mistakes including:
• The Shipper and Carrier Information: In most cases, the freight invoice will be provided by the carrier. The first item checked during a freight audit is usually verifying that the shipper and carrier information is accurate. In most cases, this data is populated automatically by an invoice creation program or software. If the information is incorrect, it’s likely due to data entry mistake – which can be easily resolved at the point of origin.
• Shipment weights & freight charges: This section is a manual entry, typically by the carrier or shipping yard. When a mistake is noted, it is vital to determine whether the mistake was a simple type-error or intended. Unfortunately, there are less than ethical carriers out there – so completing the freight audit is a critical step in identifying them.
• The mileage: The mileage of transport is another area where some carriers can inflate the numbers. The freight audit verifies what is documented on the invoice with the other reporting features of the shipment. If all number match, it’s accurate. If there is a discrepancy, it’s important to determine the reason and source.
• Fuel Surcharges, and Negotiated Shipping Discounts: Surcharges and discounts are negotiated on an individual carrier basis. The freight audit will verify that this data matches the individual carrier. If a mistake is found here, it’s usually at the same source of the carrier contact information noted above.
Most companies believe the freight audit is important to reduce financial errors – and they’d be correct. By verifying the data entered in the invoice, it can find mistakes, correct those errors and ensure all payments sent to the carrier are fair. It’s estimated that one-quarter of all freight invoices have some sort of clerical mistake that costs somebody money. What most people don’t realize is that sometimes the error costs the carrier money or lost revenue. While a shipper might look at this as a benefit, in the end – the error is discovered by the carrier or their auditing programs.
So – what happens when a carrier finds out that they have been shorted on a shipment? Well, that depends on the carrier and their policies. It also depends on the relationship they have with the shipper. In most cases, the carrier will notify the shipper and request the correct payment. But, this can create a lot of friction between two parties. To avoid the potential of conflict, the freight audit is needed. It ensures fair compensation for services rendered, which strengthens relationships between the shipper and carrier.
The biggest benefit that freight auditing can provide a shipper is when they allocate this important process to a reliable and proven third-party logistics provider or 3PL. An experienced company will have the resources, network, and a proven process for discovering errors, correcting them, and submitting payment directly on behalf of the shipper. Outsourcing your freight auditing and payment also permits you to save money on payroll and allocate your employees bandwidth on business growth and take care of your valued customers.