Transportation costs are one of a company’s major expenses. Depending on the type of industry, truck and parcel shipping payments can represent 5% to 10% of costs. Unfortunately, shipping pricing is extremely complex, with different classifications, numerous discounts, constantly changing fuel surcharges, and up to 150 different accessorial charges to track.
In addition, millions of guaranteed UPS and FedEx shipments are delivered late. Unless you’re checking the date of delivery against the guaranteed delivery date, you could be paying for shipments when you don’t have to.
Errors like this and others on freight and parcel invoices can add up to 2% of a company’s freight expenditures. Accounts payable departments need to have freight and parcel invoices audited, either utilizing an outside service, or an in-house system to make sure they’re not being overcharged.
Here are the six major things a pre-payment audit must evaluate to keep shipping costs in check:
1. Duplicate invoices. Due to the sheer volume of truck and especially parcel invoices, duplicate billing is more common in freight billing than other industries. Carriers often submit, unwittingly, duplicate bills with different tracking, invoice or Pro numbers (reference numbers specific to the freight industry), which make repeats difficult to identify. While carriers often will issue a credit or refund for an invoice paid more than once, some do not. So it’s best to catch this before any payment is made.
2. Discount verification. Carrier rates are heavily discounted. Discounts in the 80% to 85% range are not unusual. And these discounts may vary depending on whether shipments are inbound, outbound or third party.
Given that many companies can have dozens, even hundreds, of parcel accounts for UPS and FedEx, it’s not unusual to see some of these invoices either missing the discount or having an incorrect discount applied. During a freight audit, invoices should be checked against the discount information in a company’s contract to make sure that carriers assess the proper discount percentage to items in the bill.
3. Late deliveries. Up to 2% of UPS and FedEx shipments guaranteed to arrive by a specified date and time are late. And unless someone at the company is checking, you’re paying for these when you don’t have to. A parcel audit will identify late packages and notify the carriers that you will not be paying for them.
4. Improper billings. With any shipment there are two or three parties involved. And only one of these is responsible for paying for that shipment. Carriers often invoice the wrong party for shipments, and businesses usually pay because they don’t know how to determine who the responsible party is.
Freight audit software will check bills against the bills of lading for terms of movement (i.e. prepaid, collect, third party). If someone else paid for it, or the package is another’s responsibility, you shouldn’t be paying the carrier.
5. Rate verification. There are numerous rate errors that carriers make on their invoices. They might use the wrong rate base, make incorrect math calculations, apply the wrong mileage, have the product classification wrong, or bill for an incorrect weight. If you aren’t checking for these, you’re overpaying.
6. Fuel surcharges. Oil prices go up and down. And so does the amount you pay to ship products. All carriers assess fuel surcharges that are linked to diesel oil prices, which change weekly. It’s important that shippers verify that the invoice reflects only the amount specified in the contract.
In addition to the cost avoidances noted above, another major benefit to auditing is the creation of a significant database regarding all aspects of a company’s shipping practices.
You’ll know your freight spend by origins, destinations, general ledger codes, customers, vendors and carriers. You’ll also have data regarding all of the fuel and accessorials charges you’ve paid, charges that can make up to 25% of freight expenditures.
Having this business intelligence allows you to reduce shipping costs even further because you’ll be in a better negotiating position with your carriers. Just as other businesses use forecasts to plan for the year ahead, so do carriers. The more information you can provide them, the better rates you’ll receive.
Additionally, with the goldmine of data you can streamline your logistics operations by selecting best value carries, consolidating shipments, and tracking loss and damage issues.
Freight and parcel auditing reduces transportation costs, while providing businesses with intelligence that can help reduce freight expenditures even more. Most companies outsource the freight auditing and payment function to outside vendors. However, there are also a number of in-house software solutions that can streamline and automate your internal processes to take advantage of the many benefits a freight audit provides.
Garry Oswald is Vice President of Sales and Marketing for National Traffic Service, a freight auditing, payment, and information processing company headquartered in Amherst, New York.