Freight Audit: 10 Freight Invoice Considerations Impacting Spend

Freight Audit: 10 Freight Invoice Considerations Impacting Spend

freight invoice

Dealing with the details and complexities of logistics invoices for the supply chain is a full-time job. While traditionally these programs are called freight audits, it isn’t solely about LTL or FT. It can include the full scale of transportation modes utilized by any shipper. It may include parcel, courier, less-than-truckload, truckload, ocean, air, rail, and more. While each shipping mode presents more complexity for managing the freight audit, having a single validated source of truth across your supply chain opens up endless possibilities for shipment and cost optimization. Logistics managers can help improve their freight invoice management process, including the freight audit & payment program, by keeping ten critical facts in mind to enhance the end-to-end process. 

1. Freight Invoice Error Rates Remain a Constant Threat

One of the most significant threats facing supply chain finances is the errors uncovered during an audit. But how often does a freight invoice contain errors? Consider this. Up to 80% of all carrier freight invoices contain discrepancies, resulting in a 10%+ loss through invoice overpayments. These discrepancies range from missed points on invoices to incorrectly assigned liability or to delays in payments. Freight invoice management mistakes can become quite costly in the short and long term.

2. A Small Fraction, Near 10% of Shippers and 3PLs, Still Use Manual Auditing

A small percentage of carriers and shippers, 10%, still use manual processes for auditing. The inefficiencies associated with manual auditing are well known, including human errors in audits, excess back-office costs, inability to locate and compare quotes to invoiced rates before the due date, and more. However, that’s changing as companies have been able to take advantage of outsourced freight auditing without necessarily having the buying power of the primary industry players. As a result, they can implement an automated and intuitive process without all the excess overhead costs associated with traditional, manual, and in-house audits.

3. Accessorial Cost Add Up

Additional fees and accessorials billed by the carriers can quickly add up. Some of these fees are unknown at the time of shipping. Charges like inside delivery, liftgate services, stop-off charges, and even lumper fees can compound the total cost of the freight invoice.  Given the complexity of some of these charges, using shipment density, distance traveled, person-hours for unloading, most companies don’t have a mechanism to manage or dispute them if the contractual agreement warrants a waiver. These charges can make up a significant portion of freight bills beyond the applicable freight and fuel cost. Therefore, managing these becomes imperative to a healthy freight audit program. 

4. Duplicate Charges & Unshipped Invoices Are Among the Most Common Freight Audit Problems

Incorrectly applied shipments to open accounts receivables by carriers can cause errors in payments and reimbursements. This could be due to an incorrect assignment of the freight invoice for shipment numbers or mistaken billings by the carrier, such as billing a different pro or tracking number. If left unchecked, these overpayments can add up quickly. 

Another common area of open liabilities includes manifested but not shipped products. Essentially, these are shipments that are tendered to the carrier but never picked up or delivered. And you are billed for these activities. They lead to significant errors in settlement, invoicing, and freight audits alike.

5. Pre-Auditing & Speed Is Critical to Avoid Overpayment

Many carriers have limits on time to file a claim, so knowing when an issue has arisen and how to best respond are critical for repayments—for instance, filing for errors before the invoice due date or before payment is made since it’s harder to recoup after paying the freight invoice. Freight invoicing, payment automatons, and data tracking can improve notification and response time throughout the chain. Meanwhile, automated follow-ups to check on claims status updates can further ensure nothing slips through the cracks. 

Keeping close tabs on freight audit and payment protocols and spending trends is essential for effective payment management. Automated shipping data analysis and communication throughout the supply chain can ensure things stay on track and align with predicted projections. 

6. Auditing Companies Have Expanded to Pure Technology Resources to Drive Additional Savings

The implication here is that tech-driven audits are cost-effective, data-rich, use normalized data, and can run automatically. Supply chain technology and automation help everything function effectively from start to finish, which boosts profits while cutting costs. They can further help your team operate more efficiently without diving into spreadsheets manually to build reports.

7. Auditing Has Grown More Efficient and Affordable Via SaaS Tools

A crucial part of freight audit and payment management can involve SaaS and similar tools and platforms. In fact and as explained by Inbound Logistics, “Given the maturity of the FBAP market in North America, the greatest potential for industry growth comes from companies and operations in Europe, Asia, Africa, and Central and South America. And no matter where they’re based, a growing number of shippers are looking for freight bill information that takes a global perspective.” This is vital because invoicing and auditing costs of outsourcing are 33% of in-house auditing protocols. Outsourcing and developing more robust programs to achieve these goals are a huge opportunity to use data analytics.

8. The More You Ship, The More Opportunities There Are to Get Creative With Optimization

When there is more freight to move and more shipments to handle regularly, there are more opportunities to work with more partners. That’s a complex way of saying that new carriers, handlers, and other parties are involved. There is more to manage and juggle, but it also provides supply chain flexibility to absorb some costs and disruptions. Of course, it all adds to the complexity and risk for error in the freight invoice.

9. Single Source of Truth

Advanced analytics in transportation are paramount to a healthy supply chain that measures throughput and mitigates risk. Freight audit programs lend themselves to collecting data that can be utilized to understand total landed cost, transportation forecasting, and planning. As we mentioned earlier, 80% of invoices can have discrepancies, which typically inconsistent data. Building out a reach data normalization program is key to managing this wealth of information. For example, carriers have different names for the exact charges, making apples-to-apples comparisons difficult; company names can often get misspelled or miswritten, impacting the quality and usefulness of data. Cities often have different valid names. Without normalization, evaluating cost per route is nearly impossible, resulting in freight invoice errors.  Data normalization across all aspects of the freight audit and payment process makes it easier to understand and compare trends. 

10. Freight Payment Processing Is Rife With Risk Too

Without a bank, a typical freight payment grows inherently riskier. There are federal, state, and local regulations to consider too, and if the transaction falls through, it puts your profitability at stake. That’s why it’s imperative to work with a partner that has a verified, proven bank in every transaction and management of the freight invoice. And that helps to build more regulation into the process too. 

For example, think back to the 2019 disaster of IPS Worldwide filing bankruptcy for misappropriation of funds. Within a few months, it became clear that IPS had lost $100 million+ to its clients, says Eric Johnson of JOC.com. And IPS left many shippers with the sudden realization that unregulated third-parties present a costly risk in shipping payment processing. 

Real-Time Insights Are Essential to a Closed-Loop Billing Cycle, Building a Stronger Need for Pre-Audits

Data is king in the modern supply chain and is essential for freight billing management and oversight. Staying on top of trends and disruptions can maximize profits and lower costs daily. Stay strategic with a world-class freight invoicing accountability, auditing software, resource by connecting with Intelligent Audit

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