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Auditing Freight Invoices Saves Big

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Ship carrying freights

Protect Your Transportation Costs

Few homeowners would neglect to insure such a key asset as their home. Nor would most drivers fail to protect their cars against damage or theft. Businesses take great care to prevent loss, intentional or not, due to negligence, malfeasance or inefficiency by hiring outside accounting firms to routinely audit their financial statements or evaluate their processes for SSAE-16, ISO9000 or Six Sigma certifications.

Yet, many shippers do not provide themselves with this same sense of security for one of their largest business expenses – transportation costs. This leaves them unnecessarily at great financial risk due to incorrect charges from their carriers that can amount to hundreds of thousands of dollars annually.

Trust, but Verify Carrier Invoices

Carriers do their best to ensure errors are limited, but they are human and do make mistakes. There are many times when a small data entry error or an oversight to attach a new shipper number to a master plan can create a large negative financial impact on a shipper’s bottom line. Hoping that the carrier will pick up on their error is not a sound strategy; and most shippers have more strategic projects to focus on, rather than reviewing hundreds of thousands of data elements looking for an error.

A large retailer asked us to take a look at their historical carrier invoices. We discovered that they were inadvertently being charged for Saturday pickups because they were manifesting Saturday for Monday pickup in an attempt to get ahead of the upcoming week’s shipments. The problem went back several years, but the carrier only allowed recovery of credits for the previous six months, an amount that totaled more than $500,000. The amount left on the table amounted to more than a million dollars lost. Had an effective auditing process been in place insuring against even these kinds of simple errors, such a large loss would have prevented.

Attention to Detail

A recent study by American Shipper, in association with the Retail Industry Leaders Association (RILA), showed that nearly two thirds of shippers reported freight bill accuracy of 95% or less. The conclusion of this shipper-funded study was that any audit worth doing would be a thorough audit that looks at every audit point.

For shippers that do not have a well-developed freight audit tool, implementing a complete audit is too expensive to deal with in-house. A detailed audit, payment and claims process for a medium to large shipper requires multiple full-time employees dedicated to the process. Internal audit teams tend to be a subset of the accounting group and are frequently pulled away to work on other critical finance functions. The audit suffers, and the shipper’s bottom line does as well.

Double Check

Mistakes and errors happen based on human error. Bad things happen to good people; that is what insurance is for. No one wants to be the person that comes home to a house in ashes and explain to their family, and bank, that they opted to go without insurance.

Many shippers worry they will alienate their carrier representative by engaging an auditor to protect their freight spend. Yet, would that same person worry about the feelings of car salesmen by presenting blue book values or shopping another dealer? A doctor should not be offended when you obtain a second opinion before undergoing a major surgery. Why should a sales representative from a carrier alienate a shipper, or punish that company with higher charges in the future if they are simply watching out for their best interests and insuring they are not being charged more than they should?

The carrier representative should be the first to tell a shipper of his confidence in his pricing and billing department’s capabilities. That rep should want to make sure his client is receiving a fair and honest deal. Any other stance should be suspect.

Summary

Freight charges are far more complicated than they would first appear. It takes constant study and attention to be sure shippers are fully covered. The risks associated with not monitoring and managing freight spend are too great, often resulting in hundreds of thousands of dollars in unnecessary cost. Companies, like consumers, should do all they can to protect themselves from unnecessary loss and ensure they are receiving the best transportation rates, service and terms. An experienced freight payment company is usually the best way shippers can protect themselves, their profitability and customer service.

I’d love to hear about your experience with freight auditing – please drop me a line in the comments box below.

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