The essential processes in an organisation can often be the most time consuming and hence, sometimes given a lower priority by logistics professionals.
In this guide to simplifying the process, we’ll take a look at the benefits of a freight audit alongside the payment and billing systems advantages.
As ever, when tasked with the movement of shipments, organisations must keep costs to a minimum, now more than ever given the current financial climate and revenue demands on their business. At the same time, trade issues, disruptions and a whole host of other industry challenges must be considered and factored in.
What is Freight Audit?
A freight audit is the process of reviewing, verifying, and validating freight invoices to ensure that the charges billed by carriers (such as trucking companies, shipping lines, or air freight providers) are accurate and align with pre-agreed rates, contracts and services rendered. Audits are typically used by businesses involved in shipping goods, such as manufacturers, retailers, or distributors, to manage logistics costs and ensure financial accuracy.
What are the key aspects of the audit?
Invoice verification ensures that the invoices submitted by freight carriers accurately reflect the services provided, including the correct routes, delivery times, and the weight or volume of the cargo. Invoices are compared against bills of lading, contracts, rate agreements, and shipping documentation to verify consistency.
Rate validation is used to confirm that the rates charged by carriers (e.g., per mile, per kilogram) match the rates that were agreed upon in contracts or service level agreements (SLAs). Auditors then check for discrepancies in pricing, including fuel surcharges, accessorial charges (e.g., lift gate fees, extra stops), and taxes.
Identification of overcharges or errors including any duplicate billing, or incorrect charges (such as fuel surcharge miscalculations or wrong destination fees). Through careful analysis of each line item on the invoice, discrepancies can easily be identified.
Dispute resolution by the freight auditor when errors or discrepancies are found. These can then be communicated with the carrier to resolve disputes or request adjustments, and appropriate negotiations carried out with the carrier to agree refund claims or corrections.
Data collection and reporting ensures a better insight into shipping costs, carrier performance and billing trends from the detailed reports which can be generated automatically by the audit. By analysing the audit data, businesses can optimise their logistics operations, reduce costs, and improve future contract negotiations with carriers.
Why are freight audits important?
Cost control can be tightly monitored as the audit helps freight companies to reduce logistics expenses by identifying and correcting overcharges or errors on invoices.
Increased accuracy by automated freight audits or third-party services is brought about by ensuring that billing is accurate, minimising financial discrepancies and avoiding overpayments.
Compliance with contracts is much easier as the audit ensures carriers adhere to the contracted rates and service agreements, protecting the company from unauthorised charges.
Cash flow management is easier as invoices are paid only when accurate, meaning businesses can simultaneously manage cash flow, prevent unnecessary payments and improve budget forecasting.
Performance monitoring can provide valuable insights into carrier performance, helping businesses assess delivery timelines, damage rates and service quality, enabling them to renegotiate better terms if necessary.
Types of Freight Audits
Manual freight audits are conducted internally by a company’s logistics or accounting team and require human review and verification of freight invoices. Whilst cost-effective for small businesses, they can be time-consuming and prone to human error.
Automated freight audits involve software or third-party providers to handle the audit process by using algorithms to compare invoices against contracts and shipping data. The process is highly efficient, especially for businesses with high shipping volumes.
Third-Party Freight Audits are utilised when companies outsource the freight audit process to specialised service providers, with third-party auditors handling the invoice verification, error correction and reporting, providing expertise and scalability.
What is freight payment?
After a freight audit, freight payment refers to the process of settling charges owed and any additional fees associated with the transportation of freight – after the audit, the accuracy of the charges can be fully verified.
As outlined so far, it’s easy to see the benefits of conducting freight audits.
By identifying overcharges or erroneous fees, businesses can significantly reduce their logistics costs, with the audit providing a clear, accurate view of freight costs and carrier performance.
Audit data provides companies with the tools to be able to renegotiate contracts more effectively and thus, secure better rates or terms. At the same time, they save time and reduce the administrative burden on internal staff, allowing them to focus on higher-value tasks.
Freight audits are an essential component of supply chain management, especially in industries where shipping and logistics play a major role. They help maintain cost efficiency, ensure transparency in transactions and improve overall financial and operational performance by ensuring that transportation costs are controlled and accurate.
The audit is a critical process that ensures companies are billed accurately for their shipping and transportation services. By identifying overcharges, preventing financial leaks, and providing data for performance improvements, freight audits help companies manage their supply chain costs more effectively and most importantly improve their bottom line.
