Freight Audit Process and Payment Guide: Challenges, Tips & Benefits

In the supply chain industry, the freight audit process can provide a competitive advantage for invoicing and cutting back costs. As reported by Supply & Demand Chain Executive, "As the shipping industry becomes more complex, so too does freight payment. It requires concrete processes, extensive data capture, rigorous audit, and total compliance to the shipper's business rules. Tasking a shipper's in-house team to identify and resolve invoice discrepancies can distract for other more strategic and valuable tasks and may cost more than any savings found." Outsourcing freight audits and payments can provide advanced software and IT platforms to ingest, cleanse, normalize, and analyze shipping data. The accuracy and efficiency gained through outsourcing can help shippers make data-driven decisions through actionable insights from the provider. Shippers need to understand the details of freight audit and payment, including its challenges, tips, knowing when to outsource, and benefits.

1. What Is Freight Audit and Payment

In simple terms, a freight audit analyzes a carrier's bill to seek out invoicing and ensure the actual cost charged matches the quoted price between the shipper and carrier. This process involves looking through transportation data and verifying the shipper is paying the proper amount and has not been overbilled, inaccurately billed by breaking out each charge to validate that they are correctly billed based on your quoted price and or contractual agreement when in place, or double charged. This includes breaking out each charge, rerating the shipment based on ship to and from points in order to see where accessorials should apply and where they should not. The audit then bases those charges against the spot quote and or the contractual rates. Nobody wants to pay for something they didn't get —however it happens quite often. The aim is to find any issues as early as possible and decrease the opportunity for overpaying while gaining insight into the logistics process. After beginning the freight audit partnership and beginning the steps for how to do a freight audit with in-house or external resources, the freight auditor will collect the invoices and normalize the data to validate the invoice details with an advanced analytics engine.

2. Challenges of Auditing and Payment

Managing an invoice database can present a challenge for outdated, paper-based auditing processes. Even with digital freight accounting processes implemented, auditing such invoices requires invoice databases potentially for every carrier a shipper uses. Other challenges such as different dispute procedures, time management of overworked staff, and errors in staff audits contribute to higher labor costs.

Traditional Freight Finance Vs. Secure Finance

Recourse financing is associated with bank loans and similar debt structures. Recourse financing holds drivers and fleet owners liable for the balance owed on loans. As insurance against defaulting on loans, recourse financing frequently requires borrowers to put up some form of collateral, such as property. Nonrecourse financing offers more flexibility to the trucking industry. While collateral is still used to secure financing, there are no hefty penalties if the borrower defaults on the loan. Lenders still have the ability to take the property used as collateral, but they cannot pursue payments beyond that point.

Reactive Versus Proactive Auditing

Reactive analytics refers to analytics derived from historical or old data rather than real-time data. Such transportation analytics can provide benefits when seeking out errors and determining why a situation occurred; however, it does not provide visibility into the current data that is instrumental for driving improvements. Proactive analytics focus on data as close to real-time as possible, allowing shippers to catch problems before they can cause serious damage to their bottom line. Managers and executives know that supply chains need to be nimble and resilient in today's world of constant change. Utilizing real-time data allows shippers to overcome current issues and plan for future disruptions in one data repository.

FBAP Solutions Go Well Beyond Invoice Checking and Payment

Freight bill auditing and payment is an automated process that can check and verify millions of invoices within hours of receipt and process payment through freight payment software with a higher level of validation and verification. Along with handling invoices and payments, this process provides data-driven insights that can be used to drive advancements in overall operations. This results in increased visibility in international freight activity, unified in a single platform with consistent formats that resolve differences in language, currencies, units of measure, and other variables.

3. Best Practices to Enhance Freight Auditing

The freight audit process can help improve profitability, optimize logistics, increase efficiency and, most importantly, cut costs. However, proper execution and data-driven management can make or break the entire process. As e-commerce grows, freight spending will continue to increase, and such increases will remain a critical factor in negotiating contracts and securing available capacity. To achieve the goal of tightened payment processes, relying on accurate and thorough data to generate strong analytical reports, follow these best practices.

  1. Ingest data by integrating your supply chain systems. Advanced technology and IT platforms provide the functionality to ingest, cleanse, normalize, and analyze invoice data.
  2. Normalize data to make it comparable. Data that might be listed in slightly different ways in disparate systems gets simplified to a single data point. Normalizing data points allows important information to be gathered from charge codes, proper names and company, as well as the origin and destination pairing.
  3. Address anomalies by correcting issues immediately, such as GL code differences or missing data points. Having proper and clean data provides more accuracy. Differences in the data or anomalies found while validating invoices must be resolved by a software or account manager.
  4. Analyze data to benchmark carrier performance. Benchmarking provides a comparison of current transport costs against competitive market rates, providing a more informed RFP process and eliminating much of the hassle associated with tracking total landed costs.
  5. Apply actionable data insights to make better carrier vs. carrier decisions. A deeper look can drive strategic decisions for carrier rate negotiations and facility site selection.
  6. Leverage zone skipping based on insights to lower costs. Zone skipping allows shippers to combine parcel distributions and ship them together to the same destination region, eliminating waste and opening the door to lower rates by avoiding the higher costs associated with air shipping.
  7. Avoid putting all your eggs into one basket by working with regionals as well as nationals. Diversifying your carrier network to leverage regionals allows shippers to create quasi-national networks that can function as a single unit, provided shippers have access to the data to support such a strategy.
  8. Listen to the experts in auditing. Shippers already have plenty of responsibilities; figuring out the best strategy for auditing isn't their core business. That's why outsourcing and working with experts in auditing is essential for keeping costs in check and maximizing value through improved auditing and use of data.
  9. Repeat.

4. Advanced and Outsourced Services

To keep pace with accelerating globalization and to gain more cost-efficient and data-driven freight operations, it's best to know when to outsource. As a business grows so does the complexity in managing freight invoices, making it harder to accurately track and analyze transportation spending. In general, in-house audits are tough due to limited staffing and resources. Trying to recruit, hire, and train new staff will add costs rather than reduce them. Outsourcing freight and audit payments can provide cost savings and better visibility with a more advanced system ready to handle the thousands of invoices. In addition, freight auditing programs are inherently a profit center for shippers providing a positive return on investment regardless of current processes.

Why Continuous Improvement Requires A Comprehensive Approach

An in-house manual auditing process is extremely tedious and time-consuming.. Shippers too often have to wait for the invoice to arrive, obtain the original quote, review GL codes, verify the delivery, validate payment information, and initiate the payment. Companies may have thousands or even tens of thousands of invoices that require auditing, which can lead to in-house delays or extra FTE costs.

The freight audit and payment process is being increasingly outsourced to save resources through applied business intelligence. A Freight Audit Provider already has the foundation with advanced software to process data from all modes. Outsourcing with an analytical-driven business partner who can ingest, cleanse, and normalize the data, and then use a proprietary platform to provide actionable insights can help improve all areas of operation.

The Benefits of Outsourced Auditing

Rather than attempting to audit the invoices manually, a freight audit provider can provide the competitive advantage of quicker auditing. Outsourcing also provides the following benefits:

  • Peace of Mind can come easily with ensuring the freight invoices are accurate and paid on time. Freight Audit providers have developed specific and sophisticated technology systems to catch errors that might otherwise go unnoticed.
  • Data-Driven Insights gained through reporting tools can lead companies to make informed cost-cutting decisions. Many freight payment companies continue to improve their technology stacks and services to provide greater insight from data.
  • Variance Thresholds that automatically determine whether an error is worth pursuing in terms of filing for a chargeback or other form of correction against the carrier as well as implement specific and customizable business rules to the audit and pay process.
  • Expert-Guided Chargebacks occur when a carrier fails to meet the established service levels. Chargebacks can occur when cross-referencing elements with corresponding information from sourcing, visibility, and manifest-tracking systems.
  • Reduced Administrative Costs, from easing the tasks of invoice processing, creating cost savings through invoice audits, and delivering actionable insights. All the steps traditionally done manually can now be done with a freight provider and its automation.
  • Increased Carrier Accountability, from carriers being more inclined to rectify any issues, such as additional steps to hold drivers accountable and reduce future failures.
  • Validation Across Different Data Sources that ensure the billed rate is accurate and reflects the quoted rate, or in other cases, it may work to ensure any discrepancy is explained and documented as to why the rate changed.
  • Access to a dedicated, account management team work hand-in-hand with your team, serving as an extension of your team, adding value through the implementation of industry-leading best practices. In addition to dedicated support, the account team applies various methodologies, tools, and processes used to continuously identify, analyze and address opportunities to save resources.

Reap the Rewards of Improved Freight Audit and Payment With Intelligent Audit

To boost your bottom line and receive the exceptional results of saving costs, optimizing resources, driving growth, and improving operations, outsourcing is the best option.

A freight audit and payment solutions partner can increase efficiency, visibility, and provide more data-driven insights to improve operations. Connect with Intelligent Audit to learn more about how your team can augment freight audit and payment with world-class analytics.

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