Ready to save some serious money on your freight? Skip to the bottom to grab our freight audit checklist, or read on to find out why all wholesalers and retailers should be conducting regular freight audits.
Why you should conduct regular carrier invoice reconciliation and performance management
If you’ve ever lost money to a bad freight audit, you know how frustrating it can be. There are many variables and complex algorithms that go into each shipping invoice – taxes, tariffs and extra charges can snowball and add painful extra charges.
Freight audits help you verify that you’re paying the right amount for your freight, and aren’t being overcharged due to errors or discrepancies on your invoices.
Here are a few reasons you should conduct regular audits on your freight:
- Ensure your goods are delivered in full and on time
- Pick up any duplicate invoices
- Spot any errors or overcharges in invoices
- Check that you’re getting the rates you’ve agreed to
- Apply any discounts you’re entitled to
- Verify any taxes and add-ons are accurate
What’s involved in a freight audit?
When we talk about a freight audit, we’re mostly talking about reconciling your carrier invoices so that you haven’t been overcharged or hit with any unwanted fees.
But you shouldn’t just check your invoices.
You should also track each carrier’s performance to make sure they’re upholding a high standard of delivery and contributing positively to your customers’ experience.
Freight audit metric one: Carrier performance
You can measure carrier performance by tracking efficiency between lanes, or through metrics like a Delivered In Full And On Time (DIFOT) score. If you can, generate these metrics yourself rather than taking them from the carrier, so that you know they’re consistent with the rest of your data.
If you’re using a smart freight management system (like MachShip) you’ll easily be able to track and compare these metrics in real time through your included dashboards.
Freight audit metric two: Carrier invoice reconciliation
How you reconcile carrier invoices will depend on the system you use. Doing it manually can be a painstaking process, where you match your pre-agreed rate cards against each individual invoice you receive, one-by-one.
If you use a 3PL or 4PL, they’ll generally handle invoice reconciliation and also take care of the analytics part of your shipping function to make sure your carriers are working effectively. We work with many 3PLs and 4PLs, as well as wholesalers and ecommerce businesses, to make freight seamless and improve visibility and control over the shipping process.
Here’s a step-by-step guide to a thorough freight audit.
Your freight audit checklist
1. Collect your invoices
First port of call is to get all your invoices together. You want the detailed CSV files sent by your carrier, not the basic PDF invoices that go to your finance department. These have the full rundown of itemised costs which you’ll use to cross-check your invoices.
2. Set a tolerance
An invoice that’s out by a dollar or two probably won’t keep you up at night. To avoid wasting time on these little discrepancies, decide on a tolerance you can work with – for example, anything overcharged by $10 or less goes through to the keeper.
This may just be an internal process agreed upon throughout your team – but if you’re using a smart freight management system like MachShip you can specify tolerances in your settings.
3. Scan for inconsistencies
The next step is to look through each invoice and look for discrepancies between the quoted cost and the final invoiced amount. If you have a freight management system with robust invoice reconcile capability, this will only take a minute or two. However, if you’re doing this manually, it could take up most of your day.
MachShip, for example, automates this process. All you need to do is import your CSV file and everything is instantly reconciled. MachShip also allows you to set up workflows for reclaiming credit from carriers (more on this later).
Common reasons for freight invoice price inconsistencies:
- Check weights are inconsistent
- Items have been added to the consignment
- You’ve been billed at the wrong rate
- Wrong service (for example, express rather than regular, or air rather than sea)
- Fuel surcharges or other levies have been added without your knowledge
4. Cross-reference with carrier performance metrics
Most shippers are diligent with freight audits, but don’t cross-reference those with the general performance of the carrier. Are you getting good value for money?
Whereas carrier invoice reconciliation is normally done on a regular basis (eg. weekly), you don’t need to check your carrier performance metrics as often – quarterly is fine.
It’s always better to use your own efficiency and DIFOT metrics (if you’re collecting them) so you know the source of the data.
5. Review your carrier rates
Now is a good time to check the rates you’re being charged by your carrier. You want them to be consistent with the rate you have previously negotiated (or that your 3PL or 4PL has negotiated for you).
Also consider their performance metrics (as in point 4) and any discrepancies you have picked up during the reconciliation process. You may have cause to renegotiate a lower rate or even look for a new carrier to partner with.
For more on why you should have multiple carriers on call at all times, check out this blog.
6. Create credit requests for any overcharges
Once you’ve identified any discrepancies, you need to go back to your carrier and request that a credit is added to your account for the amount you’ve been overcharged.
If you’re working through this process manually, you’ll need to compare the amounts, work out the difference and create a credit request. If that sounds a bit tedious, MachShip can do it all for you – automatically scraping the invoices and presenting you with a ready-made credit request. All you need to do is hit send!
Download our PDF freight audit checklist so you’ll always stay on top of invoice discrepancies and carrier performance.