The freight audit process: Are you optimizing your spend?

If your organization is like most, paying freight bills is likely not an activity that you spend much time or energy thinking about. It's merely a necessary step in compensating freight carriers for services rendered. However, it's an important task.

Because freight invoices are often both complex and confusing, it's essential to carefully review and verify all relevant information before making payments to any carrier. To be sure you guarantee the legitimacy and accuracy of these transactions and their respective invoices, start by asking some critical questions:

• Were the contracted services performed?
• Is this bill from a legitimate vendor and account number?
• What are the pertinent payment terms?
• Should the charges have been billed to your company in the first place?
• Are the charges billed correctly?
• Are any additional fees valid?
• Is it possible that this could be a duplicate charge?

Additionally, there are a multitude of carriers, rules, billing formats, rate structures, accessorial fees, international tariffs and rating methods that vary based on the mode of transport. Some carriers bill accessorial fees on the original invoice or progressive (PRO) number. Others bill them on an entirely new invoice number.

It’s issues like these that make the freight bill audit and payment (FBAP) process an essential part of your accounts payable (AP) procedure.

Make the FBAP process work for you

First, make sure all items you ship have accurate descriptions, weights and dimensions in your system and that this data is also accurate on the bill of lading. This will confirm the costs your transportation management system (TMS) estimates are correct and lead to an accurate freight audit that avoids weight and inspection fees.

Next, ask yourself if you have the proper systems and appropriate controls in place. Then determine if you have sufficient levels of specifically skilled staff to manage the process in-house. Staff must be able to interpret carrier contracts, understand rating methods and verify the application of above-and-beyond accessorial fees as well as carrier rule tariffs. Be sure to consider that, due to the involved nature of freight audits, your general AP resources may lack the necessary skills.

On the other hand, you could outsource these burdensome tasks to a freight audit organization that can review all modes and provide general ledger (GL) coding and reporting.

Be sure what you pay is what you owe

Your carriers must always invoice upon delivery and include proof of delivery. This ensures that your carriers have carried out all contracted services before payment. Invoicing upon delivery also allows carriers to include any additional fees or applied accessorial fees on the original invoice. If you decide to outsource freight payables, reducing the number of invoices you need to track down for any shipment improves efficiency and lowers transaction fees.

Freight audit pays for itself (and then some)

It’s fair to say that absolutely everyone wants higher efficiency and lower costs. That’s even more true in times like these. Engaging a freight audit firm can recover up to 8% of total freight spend — if not more. Not only that, but further analyzing your data for any anomalies can add to your potential savings. Variances can include using non-contracted carriers, not using prescribed transportation modes, failing to consolidate orders or using more expensive services than those specified to complete delivery. Identifying and resolving these and other issues can lead to even greater savings.

Contact us and learn how NTT DATA Supply Chain Consulting’s Transportation practice can help you build an FPAB process that works, maximizing freight cost efficiency while maintaining service levels. Our top supply chain talent, enabled by proven, leading-edge digital assets — tools, methods and content — delivers actionable insights and measurable outcomes to some of today’s largest and most complex supply chains.