Freight invoice audits are an essential aspect of managing logistics operations.
Shippers, carriers, freight forwarders and 3PLs each stand to benefit from logistics audits. They help ensure accurate invoicing and payments, while also identifying areas for potential cost savings.
In this article, we’ll provide you with a complete overview of freight audits, including:
- What they are
- The process behind them
- Information typically reviewed
- Common issues found
- Tips for avoiding audit issues
- Types of freight auditing software
Keep reading to learn how a freight audit could benefit your operations.
What is a freight invoice audit?
What is invoice processing and why does it need to be audited?
A freight invoice audit is the process of examining and reviewing the invoices that carriers issue to shippers for their services. The aim of these audits is to ensure that invoices accurately reflect agreed upon services and associated costs.
Freight invoices can be complex, with multiple fees and charges that can be confusing or difficult to understand. The audit process involves analyzing the invoice to ensure that all charges are legitimate and that shipments are billed correctly.
Ultimately, companies undertake audits to save money and improve their bottom lines. Additionally, an audit can help to identify areas of improvement in the shipping process and lead to better cost management strategies.
How does freight auditing work?
Freight invoice processing steps involve comparing invoice details to actual services provided. Auditors typically review shipment weights, dimensions, transport modes, pickup and destination locations, service types, and other relevant information.
Generally speaking, an invoice auditor will follow these steps:
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Obtain invoices – The first step in the freight auditing process is to obtain invoices from the transportation provider.
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Review invoices – Next step, the freight auditor reviews each invoice in detail to ensure that it accurately reflects actual shipment details.
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Identify errors – Auditors will note any errors, including overcharges, underpayments, duplicate bills, incorrect freight classifications, etc.
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Carrier communication – Once discrepancies are identified, the freight auditor discusses them with the relevant parties. The auditor may ask for more information or clarification to resolve the issue.
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Claim refunds – After discrepancies are resolved, auditors may initiate refund claims on behalf of their customer. Audits conducted on behalf of carriers may result in accounts receivable recovery efforts.
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Reporting – In the final step, freight auditors generate reports documenting the entire auditing process, including claims, refunds and any savings generated. This is important from a financial compliance perspective.
Overall, the invoice processing procedure helps companies save money in many ways. It helps identify billing inaccuracies and overcharges, streamlines the payment process, and offers insights into transportation expenses.
What is reviewed in a freight audit?
There are several documents that your company must have in place for a complete audit. They may include:
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Freight bills/invoices
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Bills of lading
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Carrier contracts/agreements
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Purchase orders
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Delivery receipts
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Customs declarations
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Freight manifests
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Shipping labels
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Proof of delivery
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Carrier rate sheets
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Tariff schedules
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Payment receipts
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Claims documentation
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Carrier invoices and receipts
It’s best to check with your freight audit company to see which documents are required for the invoice management process. They can guide you on how to organize documentation for the audit.
Common issues found in freight audits
Some common issues found in freight invoice auditing include:
Incorrect invoice charges
This can occur if the freight company bills for more than the agreed-upon price or charges for services that were not actually provided.
Duplicate charges
Freight invoices can sometimes include duplicate line items, which are billed twice or more. A proper invoice management system should help avoid this.
Incorrect weights or dimensions
Incorrectly inputted weight and dimensions in invoice processing software can result in inaccurate costs. Be sure to correctly input data to ensure correct payments.
Misclassified goods
Freight companies may classify goods into the wrong category or class for invoice approval. This can result in higher shipping costs or incorrect fees.
Late deliveries or pickups
If a shipment is delayed, the carrier may still bill for the original delivery or pick-up date during invoice payment processing.
Carrier consolidation errors
This occurs when multiple carriers transport a single shipment, and the charges aren’t properly consolidated.
Accessorial charges
Additional charges, such as fuel surcharges or handling fees, can be inaccurately added to invoices for freight payments.
While this may seem daunting, there are many invoice processing solutions to avoid freight invoice issues.
How to avoid issues on your freight audit
To avoid freight bill auditing issues, make sure that accurate and complete data is provided to your freight audit team. It helps if you can implement clear and detailed carrier and shipper contracts from the beginning.
Establish clear invoicing and payment processes, and implement clear communication channels between all parties involved in the freight audit process. This is critical.
Be sure to:
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Regularly review and reconcile carrier billing statements against shipping records
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Continuously monitor carrier performance metrics and address any concerns promptly
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Document all disputes and track resolutions with invoice verification
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Use a reliable and experienced freight audit service provider
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Stay up-to-date with the current economy and laws, such as the Inflation Reduction Act
In addition to these, remember to conduct periodic internal audits of the freight audit process to identify potential improvement opportunities.
Freight invoice auditing software and tools can assist you with proper freight pay and audit. Some of these invoice management tools include:
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Electronic invoicing (e-invoicing) software
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Optical character recognition (OCR) technology
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Data extraction tools
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Audit invoice payment processing system software
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Automated payment systems
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Cloud-based document management systems
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Accounting software
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Enterprise Resource Planning (ERP) systems
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Electronic Data Interchange (EDI) systems
Also, look into the 5 best trucking bookkeeping services to assist with this complex task.
Freight invoice auditing can help you to run a successful business
The invoice audit process enables you to track your expenses and ensure that you’re charging the correct invoice amounts.
By maintaining accurate and detailed invoices with freight audit software, you can easily identify billing discrepancies and address them promptly. This helps to avoid misunderstandings with your clients and maintain a positive relationship with them.
Additionally, organized and accurate freight invoices help you to manage cash flow effectively and make informed decisions about your operations. The cost of processing invoices properly is lower than correcting errors that occur when things aren’t organized.
FAQ
Freight pay refers to the payment made by a shipper or customer for the transport of their goods or products. This may be via a freight carrier such as a trucking company, ocean carrier or air cargo carrier.
Yes, a freight bill is an invoice that contains information about the transport of goods from one plan to another. These details concern shipment quantities, weights, destinations and carriers. The freight bill serves as a legal document that outlines the terms and conditions of the shipping contract. This typically includes payment due dates and any additional charges or fees.
Trucking companies can be audited for various reasons. These may include regulatory questions, safety concerns or financial issues. Fraud, misconduct and problems with insurance requirements may also trigger audits.
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