What is freight audit?

Freight auditing is the process by which freight bills are examined for errors. In such a complicated business area, errors are more common than you might think. Due to the complex logistics involved, billing inaccuracies can often occur between the shipper and carriers. Industry professionals estimate that as many as one in every four freight bills contain errors. The ultimate goal of a freight audit is to identify these inaccuracies and correct them. Without an effective auditing process it is likely that over time, these errors could stack up and have a significant impact on the company’s bottom line.

What does the process involve?

Some companies choose to undertake the freight audit process in-house, although there are specialist freight auditing companies that can generally be brought in for a fraction of the cost of setting up a dedicated internal freight audit process team.

However it is done, there are several important steps in the auditing process, through which invoices are examined, adjusted, and then verified to ensure their accuracy. The process will usually involve checking all possible variables on the invoice which includes the shipper information and the carrier information – to check that these are accurate and an exact match for the details provided on the invoice.

The tracking number is also checked to ensure there is no confusion between orders and to formally record which invoices have been paid to avoid any duplication. Next, it is normal to check the mileage and the shipment weights. Errors in these measurements can cause significant discrepancies between the bill and the initial invoice if either are entered inaccurately. Any discounts and the final price will be cross-referenced. The invoice verification process involves cross-checking the final invoice against all existing holdings, to make sure that it has not already been processed. Of course, this is an important step to take to make sure that there is no duplication of payment, and which helps to ensure the continued integrity of the supply chain.

What happens if there is an error?

Usually, if an error is identified at this stage, it can be quickly and easily remedied. The administrator or the third-party freight audit company tasked with managing the freight audit process who spotted the error would take on the responsibility of making sure that the error is corrected. They would identify exactly what kind of error had been made on the shipper’s invoice and would then need to contact the carrier to ensure that all of the errors are corrected. At this stage, if the carrier agrees that an error has been made, it would be possible to request that a new invoice is issued quickly. If the carrier does not agree that there is an error, the auditor would need to evidence the claim being made, in order to secure a new invoice. Once the corrected invoice was issued, this could then be dealt with by the freight audit team. This entire process means that the company can be assured that all freight invoices match what was quoted at the time of shipping and protects against loss.

What are the most common errors picked up by freight audit?

There are many, varied errors that can be picked up by an effective freight audit process – some of which are obvious, and some far less so. Probably the most common is an inaccurate shipping estimate, which then doesn’t align with the final invoice. This usually occurs because the supplier wrongly estimates the size or weight of the order in advance of the shipping. For example, if the suppliers estimate that an order will weigh 1000kg, they will apply the relevant shipping charge on the invoice. When the time comes to shipping, if the order actually weighs 2000kg, this will incur a higher charge from the carrier. This means that the shipping charge on the invoice does not reflect the eventual charge that is owed to the carrier – and causes the discrepancy. A careful eye for detail is needed to ensure that this type of error is identified and rectified.

Additional charges can also be applied by the carrier if they perform other services above and beyond the standard delivery as anticipated on the invoice. This could include re-consignment or delivery outside of standard working hours. Further to this, they can also apply penalty charges if the supplier causes any delays to the pick-up of the freight. This can be remedied in advance through negotiation of a detention charge, but it is important to check that this is accurately reflected and recorded on the final bill – as it can be complicated to unpack this at a later date if not.

The increasing complexity of freight costing and billing, and the risk of human error occurring at any stage presents a real danger of overpayments, where an appropriate freight audit system is not in place.