A thorough and expertly performed freight audit can offer considerable savings and improved efficiencies. By reviewing factors like billing errors, cost allocation and more, unnecessary spend can be eliminated and managed as your company moves forward.
Freight audit is especially crucial for companies that operate globally and/or with several carriers across multiple modes. The more complex a company’s transportation system, the more opportunities there are for error. Thus, the more necessary freight audit becomes.
What Is Freight Audit and Freight Audit and Payment (FAP)?
Freight audit is the process of reviewing freight billing—including billing errors, cost allocation and accruals, potential kinks in the supply chain, process management systems and more—to identify and limit unnecessary and excess spend.
A freight audit may help call attention to billing errors, as well as stages in the supply chain that are not operating effectively. Often, opportunities for automation are detected during an audit, which in-turn provides major cost-saving effects and decreases probability of human error.
Freight audit and payment refers to the management of a company’s billing and spend within their transportation systems. FAP can be done in various ways, including by in-house teams or by outsourcing.
Challenges of Freight Billing
Freight billing is not without its challenges, as most companies that deal with shipping are well aware. Billing errors, poor cost allocation, ineffective manual processes, disparate management systems, and other issues can all contribute to problems with freight billing.
Billing errors can occur due to shipper inaccuracy. These inaccuracies can happen at different stages of the shipping process and may be one-off charges or recurring charges.
For example, one-off charges can come from inaccurately reported detention time (the term for when a carrier is held up at a location longer than scheduled), which can lead to detention fees. Also, accessorial charges (extra services) may be incorrectly added if visibility and communication are not up to par.
Recurring billing errors can occur when contracted rates are either not made visible or are not agreed upon by both the shipper and the carrier.
Poor Cost Allocation and Accruals
Properly allocating costs is difficult without the proper detailed information. This is partly why poor cost allocation and accruals can add up and become the norm. They require a keen eye to closely manage them, especially when cost allocation is performed manually.
Low Visibility into Rates
Poor visibility into rates is an all-too-common issue and makes billing decisions seem blind and inactionable. Lack of visibility is largely due to companies not having a centralized place in which to organize and keep track of contracts and freight movements.
Manual Process Bottlenecks
Without proper automation, freight billing issues become further exacerbated. For example, as organizations continue to evolve with manual processes in place, employee turnover can create chaos and slow overall production. Manual processes slow down training, and disruptions like mergers and acquisitions can lead to even more disarray.
Disparate ERP and TMS Systems
Finally, organizations with disparate ERP (enterprise resource planning) systems and TMS (transportation management systems) see additional issues with freight billing. These systems must work in conjunction with one another to reach full value.
There are many challenges that come along with freight billing. Furthermore, as each step in the process is interconnected, an issue at one end of the process will often have a domino effect of creating issues in other areas. For example, poor visibility can lead to improper cost allocation. An effective freight audit and payment process helps identify recurring issues and prevent future issues.
Benefits of Freight Audit and Payment
Freight audit and payment gives companies a microscope to their current transportation billing process. FAP is about correcting current spend problems and preventing future ones.
The benefits of freight audit and payment fall into three major categories.
See: Improved Spend Visibility
See refers to the improved spend visibility. Proper FAP provides insights into transportation rates and rate contracts. This visibility helps create clearer processes. It also has long-term positive effects, setting the stage for clean audits and reporting in the future. Think of it as capturing a bird’s eye perspective of the transportation process.
Save: Identifying Cost Inaccuracies
There are several ways to save costs as a result of freight auditing. For example, cleaning up common billing errors due to shipping inaccuracies and additional fees, lowering the error rate (often achieving a rate less than 2%) associated with cost allocation, and identifying opportunities for automation all lead to savings that can add up to 3-5% or more of your annual transportation spend.
Control: Analytics and Data Governance
A company takes control using better reporting and analytics through well-connected ERP and TMS systems, as well as the implementation of automation. Data governance—the action of owning, cleaning, and taking control of data—removes blind decision-making from the equation and helps build an intentional process. It makes every step in the shipping process actionable.
For example, an organization may assume that a specific shipping lane is used most frequently. However, analytics and data governance could reveal this to not be the case, which then allows the company to make cost-saving adjustments.
While the methods of execution vary—in-house vs. outsourcing vs. transportation spend management system—the benefits that a company reaps from freight audit and payment are enormous.
Is Outsourcing Freight Audit and Payment the Right Choice?
Many companies choose to outsource freight bill audit and payment while some decide to keep that function in-house. There are pros and cons to consider with each option.
Keeping FAP in-house can give companies the impression of having more control over data, but that control doesn’t come cheap—it requires a full-time team of employees with specialized skills. Plus, with one person or team continually running audits, the same errors can occur over and over again without intervention if the process is not completely clear. Not to mention the fact that these employees instead could be working on other tasks that are important to the business and revenues.
Outsourcing FAP cuts costs—it eliminates the need for internal auditing teams, and gives the company access to experts in the industry. However, outsourcing adds an additional potential kink in the chain, as data and processes now must be communicated through a third party. The inability to communicate easily can slow deliverables and create errors.
The best solution is a system that merges the benefits of in-house and outsourced FAP while eliminating the negative aspects of both methods: transportation spend management.
How to Choose Freight Audit and Payment Services
When considering an FAP service for your organization, you’ll want to focus on some key features and capabilities. The software itself, of course, is highly important, and you’ll want to be sure you’re selecting a modern, robust technology solution. Equally important is the expertise of the people who review contract and routing compliance, and manage and validate claims—for global and/or multi-modal transactions. Furthermore, the processes and software must be strong enough to drive your company forward, yet flexible enough to grow with your organization.
To ensure you’re taking the essentials into account, consider the three main functions of an effective service: people, process, and tools.
Qualified FAP Experts
When looking for a quality freight audit and payment service, look first at its employees. The team should include subject matter experts who understand complex supply chain challenges like billing errors, poor visibility, and issues with manual processes. If your company has global transportation, the team should have experience with global regulations, billing, etc. Even better—the service should have experts stationed around the world, who are well-versed in the local regulations and other local nuances associated with freight audit and payment.
They should also be accustomed to using a white glove approach to manage those challenges. White glove consulting involves extreme attention to detail, effectively reducing common billing errors, solidifying transportation processes, and more so your organization can focus on other important business matters.
FAP services should place a special focus on process, including best practices and data governance. A good freight audit and payment service should identify and resolve current problems while also paving the way for fewer errors in the future.
The process of performing and managing freight audit is dependent on high-performing tools. Look for services that offer a modern, cloud-enabled tech stack, which is able to support high volume and can function with third-party systems (like ERP and TMS).
Matching your needs with the provider’s capabilities is crucial, especially when it comes to global transit. Not all providers have the seasoned knowledge to handle global transit. Some providers focus primarily—or only—on parcel while others have non-parcel expertise.
When choosing FAP services, select a long-term partner with the experience to guide you through transportation spend management maturity. A strong partner will help you grow from FAP now to a best-in-class supply chain in the future. Think about your future needs and select a provider that can grow with you.