What is Freight Audit and Payment and Why is it Important to your Supply Chain?
One out of every four freight bills contains an error that could affect your company’s bottom-line. In fact, here at LTX, we catch over 300 errors a day in our client’s invoices. These errors would often go unnoticed and uncorrected without a daily manual freight audit by the company and their staff.
Manual auditing and payment is time-consuming and often requires additional administrative staff time. For companies who lack these resources, they can save time and money by outsourcing Freight Audit and Pay through a Third Party Logistics (3PL) company.
In this article, 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 the company’s freight bills are examined, adjusted and verified for accuracy.
The first step is to examine the company’s invoices for errors. An 8-point system is used to check shipper information, carrier information, mileage, shipment weights, Bill of Lading, tracking number, discounts, and price. The invoice will also be verified that it has not already been processed to ensure there are no
If errors are found on the shipper’s invoice, their 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 time 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 accessorials.
- Shipper Inaccuracy is when the staff processing the shipment makes a mistake, causing the carrier to obtain inaccurate information for the shipment. If the wrong weight of a shipment is estimated on the shipper’s end, and that price is passed along as their 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 a shipper receives 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, but 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 being charged 4 hours of detention, they charge you for 10 hours.
- Accessorial Charges are charges received when the carrier performs freight services beyond normal pickup and delivery such as inside delivery, lift gate, residential pickup or delivery, re-consignment or limited access delivery.
How does Freight Audit & Pay Save You Money?
As a shipper, you will see an immediate return on investment. Freight audit and pay saves you money in two direct ways: catching those data errors discussed above and eliminating unnecessary labor costs.
Auditing has an average recovery on errors of 6-8%. If you’re sending 100 shipments a week, and 8 of those are performing cash deficit errors, an audit could drastically change your bottom-line.
In addition to the error correction savings, freight auditing can also help your bottom line by cutting labor costs. It has been noted that 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 means you’ll have the peace of mind that you’re always paying the correct amount for your shipments. LTX has a top of the line, 8 -point auditing system that ensures you never pay a penny more than you should. To learn more about our freight audit and payment services, click the “Contact Us” below.