Freight Audit and Payment: What It Is & Why It Matters

One out of every four freight bills contains an error that could affect your company's bottom-line. In fact, through Redwood's comprehensive logistics approach, we catch numerous errors a day in our client's invoices through our transportation management services. These errors would often go unnoticed and uncorrected without a daily manual freight audit by you and your staff.

Manual auditing and payment is time-consuming and often requires additional administrative staff time. If you lack these resources, you can save time and money by outsourcing Freight Audit and Pay through a Third Party Logistics (3PL) company.

In this blog post, we will explain exactly what freight audit and pay is and why it's critical to making your supply chain successful.

What is Freight Audit?

A freight audit is a business process where your freight bills are examined, adjusted and verified for accuracy.

The first step is to examine your invoices for errors. An 8-point system is used to check:

Shipper information
Carrier information
Mileage
Shipment weights
Bill of Lading
Tracking number
Discounts
Price

The invoice will also be verified that it has not already been processed to ensure there are no duplicates.

If errors are found on your invoice, your chosen freight audit and payment company would reach out to the carrier to ensure that it is corrected and a new invoice is issued.

In short, a freight audit service ensures that your actual freight invoice matches what you were quoted at the 0time of shipment.

What is Freight Pay?

Freight pay is essentially an accounts payable service for your transportation invoices. To you, that might look like relying on your logistics or transportation manager to round up all of your various carrier invoices, and then have your accounting team tackle the task of processing each separate payment by a direct clearing house, or cutting individual checks.

What are the Most Common Errors Found on Freight Bills?

The majority of variances found during a freight audit are related to shipper inaccuracies, detention, or accessorial.

Shipper Inaccuracy is when the staff processing the shipment makes a mistake. As a result, the carrier obtains inaccurate information for the shipment. If the wrong weight of a shipment is estimated on your end, and that price is passed along as your customers shipping cost, you could show a loss in shipping fees. For example, let's say Company ABC produces roofing shingles. I call Company ABC to order new shingles for my roof, and they estimate my order will weigh 1,000 lbs. and therefore charge me $500 in shipping. When the order actually ships, my shingles weigh 2,500 lbs. Now, I have already paid Company ABC $500, but ABC owes their carrier $1,500, showing a loss of $1,000 for Company ABC.
Detention is a penalty charge you receive for delaying the carriers pick up beyond the allotted time frame. Let's say that Company ABC schedules a pick up from AAA Carrier between 12pm-2pm. When the carrier arrives the shipment is not ready and he does not actually leave ABC until 6PM. There are two ways an error could arise on your invoice. Prior to this event, you have negotiated a detention charge of $65 per hour, but the carried actually charged you $100 an hour. Or, instead of 4 hours of detention, they charge you for 10 hours.
Accessorial Charges are charges for additional freight services beyond normal pickup and delivery. These include:
- Inside delivery
- Lift gate
- Residential pickup or delivery
- Re-consignment
- Limited access delivery

How does Freight Audit & Pay Save You Money?

Are you looking for ways to reduce shipping costs? As a shipper, you will see an immediate return on investment. Freight audit and pay saves you money in two direct ways:

Error correction: It allows you to catch those data errors discussed above. Auditing has an average recovery on errors of 6-8%. If you're sending 100 shipments a week but 8 are performing cash deficit errors, an audit could drastically change things.
Labor cost reduction: It helps you eliminate unnecessary labor costs. The average cost of labor to verify, process and pay an internal freight invoice is $11. But outsourcing this activity is only approximately 5 to 10% of that internal cost.

Outsourcing your freight audit and pay responsibilities to a 3PL can relieve a lot of stress. Partnering with a 3PL gives you the peace of mind that you're always paying the correct amount for your shipments.

Final Thoughts

Redwood's Modern 4PL approach includes a top of the line, 8-point auditing system that ensures you never pay a penny more than you should. Contact us today to discover what we can do for you.

FAQs

What is freight audit and payment in logistics?

Freight audit and payment is the process of examining freight invoices for accuracy and then processing payment for the transportation charges. A freight audit checks details like shipper information, carrier information, mileage, shipment weight, bill of lading, tracking number, discounts, and price, then compares the invoice to what was originally quoted at shipment time. Freight pay is the accounts payable side of that process.

Why do freight bills need to be audited?

Freight bills need to be audited because invoice errors are common and can affect your bottom line. A freight audit helps identify incorrect charges, duplicate invoices, and mismatches between what was quoted and what was billed. Without auditing, those errors can go unnoticed and uncorrected, especially when teams are manually reviewing large volumes of transportation invoices.

What errors are most common on freight invoices?

The most common freight invoice errors are shipper inaccuracies, detention charges, and accessorial charges. Shipper inaccuracies happen when shipment details such as weight are entered incorrectly. Detention errors involve overbilling for carrier wait time or applying the wrong hourly rate. Accessorial errors involve extra services like lift gate, inside delivery, residential delivery, re-consignment, or limited access delivery.

How does freight audit and payment save money?

Freight audit and payment saves money in two ways: it catches billing errors and reduces internal labor costs. The article notes that auditing can recover about 6% to 8% of errors on average, while outsourcing can cost only about 5% to 10% of the internal labor required to verify, process, and pay invoices. That makes it both a recovery tool and a cost-control tool.

What is the difference between freight audit and freight pay?

Freight audit is the review step that checks invoices for accuracy, while freight pay is the payment step that handles the actual settlement of transportation invoices. In practice, freight pay works like accounts payable for shipping charges, whether that means using a clearing house or cutting individual checks after invoices have been verified.

Can a 3PL handle freight audit and payment for you?

Yes, a 3PL can handle freight audit and payment as an outsourced service. That is useful when you do not have the staff time or administrative resources to review every invoice manually. A 3PL can examine bills, correct errors with carriers, and process payments, which reduces the burden on your internal logistics and accounting teams.

How does a freight audit process actually work?

A freight audit process starts by examining each invoice for accuracy and checking whether it has already been processed. The audit compares shipment data such as weights, mileage, tracking numbers, discounts, and pricing against the shipment record. If an error is found, the audit provider contacts the carrier, corrects the issue, and requests a new invoice before payment is made.