Less than a decade and a half into the new millennia, the business and commerce landscape across this country looks drastically different than it did previous to the dotcom boom and Amazon’s rise to ascendancy. This technological breakthrough changed or altered just about everything about American society including how we, as consumers, shop.
Gone are the heydays of the super mall, where hundreds of customers would window-shop or meander through whatever stores caught their interest; maybe buying something, perhaps not. Such a method relied upon name recognition and store location. But, as more and more businesses began to focus on their virtual business front, the old methods of drawing in customers were proven to be inefficient when compared to search engine optimization, and highly targeted online advertising, not to mention how much easier it was to shop from the comfort of one’s home and still receive the goods almost instantly.
As a result, many companies have changed their methods and shifted capital investments to reflect their customers wants and needs, with most vendors placing heavy emphasis on their online business. This modification, combined with the pressure to conform to the Amazonian model of rapid home delivery, has led to massive increases in how much shipping a business does on a weekly basis.
The proof of this altered business approach is manifested in the growth seen throughout the freight industry. This growth represents the fact that businesses are shipping goods more frequently and in higher volume than ever before, a trend that forecasters do not expect to decline any time soon.
Because of this, both vendors and retailers’ success are now intimately dependent on the efficiency and reliance of their shipping partner; concordantly their freight costs are an increasingly larger portion of a company’s total cost, especially since supply chains have lengthened with lead times decreasing.
As a result of this greater emphasis on freight logistics, it is essential that you regularly audit your freight bill since it can keep your carrier accountable and increase efficiency, thus cutting your freight costs. In this freight audit checklist, we will talk about the whys and how-tos of a freight audit scan.
What is a Freight Audit?
For those who do not know, a freight bill audit is a thorough accounting of the numbers, whereby a business checks freight invoices against the businesses’ ledger. If everything is hunky-dory, those numbers should match up, confirming that the freight carrier is being honest, not slipping in hidden fees, and charging you no more than the agreed upon amount. While at its essence, a freight invoice audit is a business seeking to pay no more than the original contract obligates, it can also be used as a learning tool, which highlights places where your business is running inefficiently or has room to improve. As we will see further down this freight audit checklist, a business can perform an audit in one of three ways: via freight audit software, third-party logistics, or an in-house audit.
Freight companies charge accessorial fees (additional charges) based on a variety of factors, many of which you might not have been aware of or even considered.
Freight companies may add fees for wait-times, terminal handling, weather delays, storage, special deliveries and a host of other factors. Confirming that you are being appropriately charged a difficult task at best. To add to this, most companies use multiple vendors, and each of these vendors may have a different method or format of charging their freight invoices; some may present it electronically, others may give invoices physically.
Regardless, when a company is regularly shipping, that paperwork can add up, errors can happen and go unnoticed, or you may be double charged. All of these things can hurt your bottom line if left undetected. As a result, a manual freight audit is a daunting, if not impossible task; even if you are shipping on a small scale, with the sheer amount of weekly shipments that most small businesses make, human error on either end is nearly guaranteed. Knowing this, if you are manually conducting an audit, you should do your best to be meticulous, and to double check your work.
Methods of Freight Audit
There are three main methods of conducting a thorough freight audit. They include:
- Third-party logistics – Audits are time-consuming and expensive. Most businesses do not have the skills, manpower, or time to do an audit internally and instead turn to third-party logistics firms to handle that. These firms are capable of providing a variety of helpful services but are exceptionally skilled at conducting invoice audits. This specialization allows you to focus on what you do best.
- Invoice audit freight system – If you want to conduct an invoice audit in-house, but do not wish to do so manually, it may be worth purchasing auditing software that optimizes the audit process. With these tools, you can track payments and audit bills, but it is worth noting that you will pay more for system upkeep and the time it takes to train the staff in proper use.
- A manual review – Manual audits involve the shipper manually processing invoices and thoroughly scanning them for discrepancies. While possible, this method is a relic of a bygone age and is both costly and inefficient for any business that ships even semi-regularly. The odds of errors or oversights occurring accrues exponentially according to the number of shipments made.
A Freight Audit Checklist
These days, freight audits are typically categorized as pre-audits, which means the bill is audited prior to payment. This allows shippers to have greater leverage and an easier way to pay the proper amount. Upon receiving a freight invoice, your first task should be to input that data into your system either manually or via EDI (electronic data interchange). This allows you to have instant visibility and gives you an easy way to check that bill or to compare it to past invoices. Once this information is uploaded, your goal is to verify the validity of the invoice.
Some things worth asking when beginning the process of freight auditing an invoice include:
- Is the applied classification correct? – The NMFA (National Motor Freight Association) annually revises and publishes the National Motor Freight Classification guide. This groups all commodities into one of eight classes, which range from 50 to 500. These classes have different rates unless you have previously negotiated a freight of all kind deal, where the rate is identical regardless of class. These classes are based on four different factors, density, handling, stowability, and liability. If a carrier incorrectly classifies your goods in the 50 class, you would be paying far more to ship those goods than you would if they were in the 500 class. Therefore, it benefits you to ensure that the proper classification is applied across the board.
- Did the carrier add in additional fees? – Freight carriers will happily charge you for any service that goes beyond the bounds of the agreed upon contract. Such fees may include but are not limited to additional handling fees, residential deliveries, inside delivery, waiting time, fuel surcharges, storage charges, and handling charges. Confirming the validity of these charges can be problematic, especially since they are not added on until after the fact. This is all the more reason why you should make sure that you are not being overcharged, or falsely charged additional fees.
- Are there duplicate invoices? – One of the most important things to check for when scanning through your freight audit is whether or not you were double-charged for a shipment. This occurs far more often than you’d think, especially since carriers have been known to accidentally charge one shipment as multiple shipments. Even if duplicate invoices represent only a small percentage of the paid invoices, that number will add up over time for any company that ships regularly. Multiple invoices can occur for a variety of reasons including a lack of strict controls in accounts payable, multiple options for receiving or paying invoices, or unscrupulous carriers. In order to prevent duplicate invoices from happening look for the following signs:
- Look for invoices made to the same vendor but from different source documents.
- Scan for invoices that have similar, if not identical, dollar figures.
- Find invoices with very similar invoice numbers, that are only off by a figure, which could be a result of human error when entering the numbers.
- Search for invoices that have identical vendor numbers and invoice, but have been paid via different accounts.
- Hunt for invoices paid to alike vendors with the same bank account, routing number, and address.
- Are the taxes right? – While this is more pertinent to businesses that ship internationally, since each country has different taxes and regulations, it is a question worth asking. Make sure that the carrier is charging you according to the most up-to-date tax laws.
- Did the carrier apply your discounts? – You may have previously made arrangements or deals with your carrier about potential discounts. If you have agreed with your carrier on discounts, be sure to check that they are properly applied. Further, if the carrier made a late delivery, that may negate, if not reduce the cost of shipment. If there is a late or damaged delivery, be sure to note that immediately on the bill of lading.
- Were the mileage and zip code right? – Naturally, the more distance a carrier is required to travel to deliver a package, the more they will charge, especially if the destination is along unused lanes or is outside of the carriers service area, which might require a transfer. Such issues can lead to additional fees, so if the mileage or zip code is incorrect, you might be paying more than you should be.
- Are the numbers correct?– Once you have verified that the charges are correct, add up the numbers several times to make sure everything adds up. Carriers have no doubt made mistakes that could be summed up by simple calculation errors. By double-checking their work, you ensure that you are not overpaying.
If you ship regularly, it is absolutely necessary for your businesses continued health to audit your freight bill and to do so regularly. No one wants to overpay or get hit with higher than expected shipping costs. Therefore, it can greatly benefit you to utilize one of the three methods by which a freight audit may be conducted.
Although it is possible to audit your freight manually, it is not the method we would suggest, instead, look to utilize a third-party logistics firm or to install a freight audit system; the money and time you will save in the long run are well worth the cost.