[INFOGRAPHIC] Mastering Carrier Invoice Freight Auditing for a Healthy Bottom Line
There are a lot of different components to consider when it comes to maximizing your results in transportation management as it pertains to all of the functions of involved in the pre and post activities of shipping freight. Whether you ship full truckloads of product or mainly send out LTL shipments, it's important that you pay careful attention to your freight invoices. While you can generally give the several freight invoices you get each day, week, or month a cursory review to ensure you understand what's being spent, a much better option is to focus on regular freight auditing process.
Based on the research of inboundlogistics.com, freight costs can make up 10% of an organization’s expenditure. As a consequence of rising freight costs, an increasing number of organizations has been more proactive in controlling freight cost and have outsourced the freight auditing process to freight audit specialists.
Freight Auditing Components & Setting Expectations of Needed Resources
Freight auditing can take place in two forms – pre-audit and post-audit. While the pre-audit is important, it's the post that really matters in this discussion. A post audit looks at the information related to a shipment's freight charges after you've been billed. It will look at numerous things including:
- Shipping time
- Shipping costs
- Insurance costs
- Accessorial charges
- Transfer points
- And more
Essentially, when one evaluates invoices received from carriers, freight auditing focuses on finding out exactly what charges were applied to a shipment and how they impact your bottom line. By doing regular audits, you will be able to avoid using carriers that overcharge and identify better strategies for your company.
However, there's a big challenge involved – the challenge of handling the audit process on your own can take up a considerable amount of time and energy on the part of your employees. That's even truer when you ship frequently. Your team must have the resources (people, time, money) to access the information, review it, and then compare it to past audits in order to make a determination as to how to proceed with the next steps or which carriers to choose next time you have a shipment.
So most likely you fall into one category or another on this issue. Either you recognize that freight auditing of your carrier invoices is vital and worth your time.... or you don't.
If you do, you realize that the average recovery on freight billing errors ranges from 3% to 8% and you have a strategy in place to recover those freight bill overcharges and mitigate use of frequently error-ridden carriers to take them out of the mix.
If you don't have a freight auditing process in place, in-house or outsourced, either you aren't aware of how to go about freight auditing of your carrier invoices, or you don't think it's worth the effort to look into it (which can include again not having the resources).
Freight Auditing Mastery Improves with Experience
After working with millions of shipments, our Freight Customer Service Reps can tell you that freight carriers make mistakes and most of those mistakes are not in your favor. Many carriers outsource their invoicing functions, which ultimately increases the overcharge/error ratio.
There is also something to note when it comes to the recovery of overcharges found in the freight auditing process: statutes of limitation concerning the time frame in which you can recover an overcharge. In the absence of any negotiated agreement to extend those times the time limitations which vary by transportation mode and or vendor are as follows:
- Motor Freight (LTL or TL): 180 days from date of delivery
- Air Freight: 6 Months from date of delivery
- Ocean Freight (FCL or LCL): 30 to 180 days depending on forwarder/carrier involved
The essential ingredient for a successful post bill freight auditing program is a robust audit trail of contracts, rate publications and other rate documentation from the participating carrier group. How easily are you able to access this information when you need it? Further, if you negotiate your freight rates in an informal fashion, and don't work as a partner or collaboratively with your various carriers, it's unlikely that post-audit will be a successful program for you and your company.
Most CFO's are naturally in love with a good freight auditing program/process, as the CFO is ultimately responsible for making sure every penny is protected for the bottom line. At the same time, most CFO's completely overlook a much larger opportunity. Let's call it a "competitive freight audit." It's great to get 25% back on an overcharge occurring on a small percentage of invoices that are billed in error. How much greater would it be to understand that every invoice was 20% higher than it needed to be even if it was correctly invoiced? Just because an invoice is correctly charged for doesn't mean that you're not overpaying for freight services. Again, this begs for a consistent, repeatable freight auditing process.
There are a number of companies who can evaluate your freight spend in concert with your business rules and required service parameters. They can even provide freight cost benchmarking by specific industry so you can evaluate where you are vs. where you could be. A competitive freight auditing involves:
- Providing a Complete & Current 30-90 Day Sampling of Invoices for analysis
- Providing an understanding of service requirements, business rules and SOP's
Every freight invoice should be audited against contract rates, pre or post-payment as a standard procedure. Having taken those steps the last and most often overlooked step should be to evaluate and benchmark your freight costs. End the end, it comes down to experience, experience, experience. Dig in....it's worth it.
INFOGRAPHIC: How to Replicate the Cerasis Freight Auditing Process
Here at Cerasis, we can help. We have put together this handy freight auditing process Infographic, below, that you too can follow if you have the resources in house to do so. If not, we offer automated software, through our web-basted transportation management system combined with our internal platform, Cerasis Central, to help streamline the freight auditing process. By outsourcing to Cerasis for transportation management, which includes freight auditing as an integrated service, you give your company numerous benefits including:
- Better productivity since someone else is handling the difficult process of the audit
- Better results since our team is experienced in freight auditing and can provide excellent reports
- Increased bottom line thanks to both of the above points
- And more
Simply put, your freight is an important part of your company. As such, you need to ensure that you give it the same attention you would any other aspect of how you do business. Reviewing data through a solid freight auditing program is a key step in making sure you're not spending too much, and is something you need to consider.
If you're ready to get more from your freight process, contact us today to see how our freight auditing service can help you.