Freight Invoice Audits: What They Are and Why They Matter

Shipping charges can make up to 10 percent of a company’s total expenses. It’s not unusual for companies to spend millions or tens of millions of dollars annually to ship their products with trucking companies or parcel carriers like UPS and FedEx. But did you know it’s common for major shipping carriers to overcharge?

Pricing in the shipping industry is complex, and in many cases, carriers make mistakes or do not meet service requirements. Billing in today’s logistics environment contains a myriad of charges and discounts, base rates, fuel surcharges and hundreds of accessorial charges. There’s a lot of opportunity for mistakes, and you need to protect yourself. That’s where freight invoice auditing comes in.

What is a Freight Invoice Audit?

As a concept, freight invoice auditing is simple to understand. The idea is to make sure you only pay the shipping charges you should, and nothing more. In most cases, software does the hard work. However, some auditing has to be done by hand. All this happens once the invoice is received. The carrier only gets paid after it’s determined that the invoice is accurate.

What Does a Freight Invoice Audit Check?

Overcharges happen in a number of ways. Some are harder to detect than others, since you have to know what you’re looking for. Here’s a sampling of what a freight invoice audit checks:

1. Discount verification: Do the discounts on the invoice match your price agreement with the carrier?
2. Did the carrier make a math error?
3. Late delivery: If your guaranteed shipment was delivered late, you don’t pay.
4. Duplicate invoices: These are extremely common in the freight industry.
5. Improper accessorial charges: You shouldn’t pay any accessorial charges that have been waived in your agreements. And any charges that are not waived should be billed at the proper amount.
6. Are all taxes billed correctly?
7. Did the carrier apply the wrong mileage or ZIP codes?
8. Was the correct product class billed?

What Are the Benefits of Freight Invoice Audits?

Besides saving on shipping costs, additional benefits of freight invoice auditing include:

1. Reducing your own in-house AP administrative expenses spent on invoice management if you use a service or software.
2. Near-immediate return on investment.
3. Access to detailed shipping and logistics reporting.
4. Ability to quickly analyze and interpret shipping data.
5. Leverage to negotiate better rates with carriers, which can allow you to get products to customers faster and cheaper.
6. Opportunity to make your shipping more cost-efficient.
7. Understanding the true cost of a shipment.

Should You Audit Your Freight Invoices In-House Or Outsource It?

In the overwhelming majority of cases, it makes more sense to outsource freight invoice auditing. Building your own team and software to the level of sophistication you get with a professional service takes time, money and IT expertise you most likely don’t have.

If your company is dedicated to keeping things in-house, some freight invoice auditing companies have created software that can be installed in your company’s infrastructure so you can reap the benefits of automated auditing without outsourcing the process and payment.

According to the 2016 Third-Party Logistics Study, 31 percent of companies surveyed use outside freight bill auditing and payment services. That doesn’t mean the remaining 69 percent do their own in-house freight auditing; they may do no auditing at all. So many companies could be missing out on the benefits of freight invoice auditing. And even after the auditing fees are included, using a freight auditing and payment service still saves you money, reduces the hours accounts payable spends on shipping invoices and captures valuable data.

For smart companies with high-volume shipping, freight invoice auditing isn’t an option, it’s a necessity.

With the ever-increasing complexity of truck and parcel pricing, freight invoice auditing is an absolute necessity in 2016 and beyond. With so many benefits available, including immediate cost savings, streamlined AP operations and the ability to quickly and easily track your logistics expenses, freight invoice auditing becomes a key weapon in your company’s arsenal.