An Overview of Freight Bill Auditing

A freight bill includes the details of a shipping transaction. Leaders in the supply chain need accurate, timely freight bill audits to make good decisions.

Unfortunately, getting to a place of reliable accuracy in freight bills is notoriously difficult. From inefficient handling to incomplete data, freight bills are rife with error, which undermines all of the desired outcomes.

Accounts receivable staff all the way up to finance leaders in an organization are often charged with standardizing and streamlining the processes around freight invoicing. The only way these processes can be improved is through the use of technology, specifically technology that automates freight bill audits.

The team at Trax is dedicated to putting better tools in the hands of supply chain leaders worldwide. Here is an overview of several core areas of freight billing and auditing, including common problems with freight bills and how to reliably audit them.

Risks of Incorrect Freight Bills

Incorrect freight bills negatively impact numerous players along the supply chain. There are some marked risks associated with incorrect freight billing:

Financial: Overpayments and underpayments threaten a company’s bottom line
Delays: Delivery delays are augmented not just by supply chain disruptions but billing issues.
Loss of P&I cover: P&I is meant to cover lost or damaged services, but coverage can be lost due to an excess of billing errors.
Loss of the right to limit liability: The Uniform Bill of Lading says that a carrier’s losses will be limited to $2 per pound. However, incorrect freight billing can cause carriers to be held liable over the $2 per pound limit.
Inaccurate insights: When the data is inaccurate, a company risks making bad business decisions

How Often Do Freight Invoice Mistakes Happen?

The U.S. transportation system moves freight valued at over $54 billion per year, with the majority moved by truck and railway.

15-25% of freight invoices contain errors, which may include incorrectly calculated fuel surcharges, wrong calculation of weights, duplications, and incorrect exchange rates.

The average accounts payable service or accounts payable department handles vast numbers of carrier invoices and transportation invoices. These professionals try to implement a good payment process, but freight audits are an essential piece of the puzzle to support supply chain planning, logistics management, on-time payments, and more.

A company's freight bills should be part of a bigger-picture data management system, and an auditing process is vital to making that happen. No accounting team is capable of seeing all of the data errors or conducting manual auditing that sufficiently improves the freight audit and pay process.

Some of the most common freight shipment invoice errors include the following:

Documentation/paperwork errors
Detention errors and overcharges
Accessorial charges
Missing discounts
Classification violations
Unexpected tax, tariff, and customs fees

Because there are so many freight invoice mistakes that can occur, and so many payment services and transportation invoices in the mix, auditing freight bills is crucial to capable supply chain management.

Auditing Freight Bills

The process of auditing freight bills is straightforward.

There are five steps to a traditional freight audit:

Centralize all invoice data for review: Collect data from multiple sources and combine everything to get a full picture of the workflow
Categorize invoice data to standardize the information: Once you have all the sources together, cleansed, and normalized, you can categorize invoices to create structure
Verify all charges and items: Cross check invoices with shipments
Analyze data: Determine the type of descriptive, prescriptive, or predictive analysis necessary to achieve your goals
Report: Depending on the nature of an organization’s goals, the audit process concludes by creating one or more comprehensive reports that display key findings

Leadership wants analytical reporting but completing all of the invoices is often time consuming enough. Delving deeper into freight cost verification and having a system for freight bill audit every time may feel intimidating at best.

However, to truly achieve high-level, well-informed supply chain planning, companies need to move from reactive to proactive freight auditing that accounts for all of the freight costs and paints a clear picture of a business's current financial situation.

By simply performing an audit in response to a problem, any organization in the supply chain falls prey to the risks mentioned earlier. By embedding a proactive freight audit process into your standard operating procedures, you will catch mistakes before they have a negative financial, operational, or legal impact.

Elite insights uncover key metrics like cost-to-serve, which captures the entirety of expenditures required to operate, and provides a big-picture view.

Challenges to Freight Bill Auditing

Based on the steps outlined above, this may look extraordinarily simple.

While the principles are, most companies encounter major challenges to implementation.

The primary challenges to reliable freight bill auditing include the following:

Bad data: Because carrier invoices are often incorrect, you may need a wider variety of trustworthy data sources
A high volume of transactions: High volume can make it difficult to establish the ideal one-to-one relationship between shipments and invoices
Excessive required approvals and paperwork: It’s common for teams to get lost in paperwork and spreadsheets when trying to crosscheck all of the numbers
Invoice variability: Different carriers have different freight invoice formatting and structures
Complex freight rates: Currency conversion, different terms by provider, fuel charges, and accessorial matrices complicate the freight rate system

Regardless of the challenges your organization has to overcome, the benefits to building a freight bill auditing system are numerous.

Benefits of Freight Bill Audits

When a company completes regular freight bill audits, it mitigates the risks associated with billing errors.

Here are some of the benefits of freight bill audits:

Better carrier relationships: Carriers need reliable data to manage their resources. Providing accurate forecasts increases trust in carrier relationships.
End-to-end visibility: By combining a variety of data sources, you gain global visibility into the supply management workflow. Performing regular audits lets you identify areas of weakness and proactively intervene.
Budget management: By keeping your P&I covered and retaining your right to limit liability, you avoid the excess costs associated with billing errors.
Catch errors sooner: By performing billing audits on a regular schedule, you reduce the chance of getting hit with large fees and extra costs. Catching problems early on reduces the negative impact of billing errors.

Freight Bill Auditing Software

While there are many benefits of freight bill auditing, the obstacles mentioned earlier can deter many supply chains from completing the traditional process regularly.

Freight bill auditing software is the solution. This technology easily overcomes the problems in freight payment and transportation costs related to volume, complexity, and invoice variability. Automation, access, and trained users paint a clear picture of logistics, and offer up enhanced visibility to all stakeholders.

The task is to choose a freight audit and payment software solution that supports your business goals.

The Trax Freight Audit and Payment (FAP) software is used by enterprise organizations around the world. Our sophisticated solution unlocks efficiencies, promotes compliance, and reduces supply chain costs by streamlining the audit process. We consider it the cornerstone of Transportation Spend Management.

Trax FAP systems include data compliance, invoice audits, settlement, and program management. It is the full end-to-end solution for supply chain companies.

To learn how Trax FAP can benefit your business, contact us today.