Freight audit explained: A guide to logistic success

Take control of your freight spend, and start your audit today. Uncover savings and streamline your logistics. 

Ever question how much overpaying results from inaccurate freight invoices? A survey by Global Trade Magazine claims that approximately 5% to 6% of all invoices contain incorrect freight bills. Imagine simply using a good freight audit system to save a sizable amount of your transportation expenses. Apart from recovering lost income, freight auditing increases operational efficiency and compliance. 

Let's explore how you could make your freight audit the pillar of logistic success.

What is a freight audit?

A freight audit is a thorough review of freight invoices meant to guarantee their compliance and accuracy. In logistics, this is a vital process that enables companies to control expenses, enhance invoicing accuracy, and fulfill contractual commitments. Freight auditing has changed over the years from hand checks to sophisticated automated freight audit and payment (FAP) systems, improving the accuracy and efficiency of the process.

Why can't your business afford to ignore freight audits?

Unquestionably, a strong freight audit program has advantages. It closes the gaps and controls overpayments. Industry studies indicate that overpayments in freight spend could account for up to 5-10% of a company's overall transportation costs, which would translate into millions of dollars a year for bigger companies. Here are just a handful of the several reasons your company needs it:

• Cost savings and improved cash flow: Studies show that by use of efficient freight audits, businesses can recover anywhere between 1% to 5% of their entire freight expenditure and improve cash flow. These recovered costs instantly increase your cash flow, freeing you to devote additional business resources to other areas.
• Improved operational efficiency: Freight audits find flaws in your shipping systems. Finding areas like incorrect routing or carrier overcharges helps you to maximize your logistics network, thereby improving operations and speed of delivery.
• Better compliance and risk management: Manual checking of several freight documents like invoices, bills of lading, customs handling, and freight forwarder bills is a daunting task. Despite high focus and effort, it still cannot 100% eliminate the chances of manual errors. Automating your freight audit process introduces AI-driven algorithms that eliminate minimal errors, which means better compliance and enhanced risk management.

What is the freight audit process?

To achieve transportation spend management maturity, it is the best way to implement a high-tech FAP procedure. This is because modern technological advancements have made it possible to monitor and manage transportation operations and expenses more effectively. 

Usually, the procedure of the freight audit consists of several important stages:

1. Initial assessment: Analyzing your past shipment records and carrier agreements can help you create a basis for comparison. 

2. Invoice verification: Invoices are then checked for accuracy to make sure they match your agreed-upon fees, service standards, and shipment information.

3. Data analysis: Audits are necessary with a focus on regulations, invoice validation, or taxes through data analytics. In this process, root cause analysis (RCA) is done, and differences are noted. This lets carriers negotiate better and enable corrective action.

4. Reporting findings: A thorough report is produced outlining discovered errors, scope of improvement, possible savings, and practical advice.

5. Freight pre-audit: Designed to proactively find possible mistakes and save money, it is done prior to payment.  

6. Freight post-audit: Designed to recoup overcharges and spot trends for the next optimization, it is carried out following payment. 

Best practices for a successful freight audit process

Implementing best practices in FAP is the best way to ensure you are using the advanced industry process. Here are some noteworthy benchmarks to consider.

• Create pre-audit strategies: Ensure that everyone understands the objectives of the freight audit, which may include cost savings, obtaining more precise results, or enhancing compliance. Gather all pertinent information, such as shipment bills, carrier agreements, and delivery confirmations, to guarantee thorough audits.
• Leverage technology: Enhance efficiency and accuracy by integrating Artificial Intelligence (AI) into your freight auditing processes. For improved data flow, make sure your freight auditing solution is compatible with other systems such as ERP or TMS. You can automate data analysis, cut down on mistakes, and boost productivity by using AI-powered freight auditing software. Use automation to compare freight invoices with shipping records and detect inconsistencies automatically. Make sure the audit has correct and current information by using real-time shipping tracking.
• Maintain compliance: Make sure your auditing procedures are in line with all applicable laws and stay updated on industry rules. Maintaining a freight audit process that is both effective and compliant requires regular internal audits.
• Continuous improvement: Establish a feedback loop to incorporate audit insights into operational procedures for continual refinement. This will help you achieve continuous improvement. Find out where you stand in relation to the competition by comparing your results to theirs.

Transforming freight audits into a strategic advantage

Audits of freight transcend simple cost control. Here's how to use them for a strategic edge:

• Negotiate better contracts: Leverage audit findings to pinpoint areas of carrier non-compliance and then negotiate more reasonable prices and service agreements.
• Strategically control transportation expenses: Get detailed knowledge of your freight expenditure so that you may decide on carrier choice, routing optimization, and cost-cutting techniques with data-driven insights.
• Turn logistics into a value-driven tool: Use data-driven insights from cargo audits to turn logistics from a cost center into a value generator for supporting corporate efficiency and profitability.

Freight pre-audit preparation: laying the groundwork for success

An audit that goes well begins with appropriate planning. Verify that you have the following easily accessible:

• Complete and accurate bills: These documents provide the basis for invoice validation. It verifies elements such as rates, weight of consignments, packing dimensions, and service level that match your agreement.  
• Carrier contracts: Easy access to agreements and contracts with your agreed rates and other terms and conditions like payment terms, LD (liquidity damage) clause, and accessorial fee breakdown lets you quickly compare what you're being billed against.
• Open communication: Seamless data sharing and fast issue resolution depend on cooperation and open communication across departments such as procurement, shipping, and finance.
• Bill of Lading (BOL): The Bill of Lading is a legally binding document that details the type, quantity, and destination of the goods being shipped. It acts as a receipt of shipment and a contract between the shipper and carrier.
• Proof of Delivery (POD): Proof of Delivery is a document signed by the recipient confirming the delivery of goods. It's crucial for a freight audit to verify that the shipment has been received in good condition and to resolve any disputes regarding delivery.
• Shipment tracking data: Shipment tracking data provides real-time updates on the location and status of shipments. This information is vital for a freight audit to ensure transparency, track progress, and identify any discrepancies during transit.
• Delivery receipts: Delivery Receipts are records provided by the carrier upon delivery of goods. These are important for freight audit to validate the successful completion of delivery and to compare against billed charges.
• Proof of insurance: Proof of Insurance documents confirm that the shipment is covered by insurance during transit. This ensures financial protection against loss or damage and to comply with contractual obligations.

Store and control all of your important shipping documentation centrally using Pando's secure document management solution. Simplify freight pre-audit preparation and guarantee data correctness.

Tools of the trade: enhancing freight audit process with technology

Software for advanced freight audits offers the following great advantages:

• Enhanced visibility and efficiency: You can automate tedious chores, including discrepancy identification and invoice data entry, to save your team's time for strategic planning and analysis.
• Improved accuracy: Advanced automated technology platforms help you eliminate human mistakes and guarantee consistent audit rule application.
• Actionable insights: Leverage holistic reporting and analytics solutions to better understand your freight spend.
• AI and machine learning: Use advanced artificial intelligence and machine learning to find intricate trends, forecast future developments, and always improve your freight operations.

Measuring success: KPIs for freight audit

Evaluating the success of your freight audit procedure depends on constant observation of the appropriate Key Performance Indicators (KPIs). Five key ones below are ones you should monitor:  

• Invoice accuracy: This KPI tracks the ratio of accurate invoices. It shows immediately your level of control over the freight audit procedure. You should always aim for a goal of 95% accuracy or above.
• Cycle time: With a shorter cycle time indicating a more simplified procedure, this KPI measures the average length from invoice receipt to payment. It shows how well your audit system runs operationally.
• Cost savings: Calculated using several approaches, this KPI shows the financial impact of the freight audit by displaying the money saved from overpayments, duplicate payments, and other variances.
• Discrepancy rate: This KPI lets one know how successful the audit process is by displaying the percentage of invoices containing mistakes. A more accurate and dependable system is indicated by a lower rate, whereas a higher indicates significant improvement is required.
• Cost per mile: This is a straightforward KPI showing the expense incurred per mile of freight. A reduced cost per mile suggests that your freight audit firm is working with carriers on reasonable pricing.
• Recovery rate: Higher percentages of this KPI indicate more successful attempts at recovery of lost funds. Reports indicate that a well-run freight audit can cut freight spending by 2% to 5%.

Navigating common freight audit hurdles

Although a useful tool, freight auditing has certain difficulties. Let us explore some of the common obstacles and their solutions:

• Data inconsistency: The discrepancy of data among several systems and papers presents a major difficulty in freight auditing. Usually, errors in billing and inconsistent shipment data follow. It demands the use of strong data management techniques, including data format standardization, accurate data entering assurance, and data cleaning technologies to remove discrepancies.
• Complex invoicing: Carriers often issue complex invoices with multiple charges, surcharges, and accessorial fees. Deciphering these invoices manually and making sure they are accurate can take time and increase your chances of mistakes. Use sophisticated freight audit and payment tools to automatically sort complicated invoices, find disparities, and apply appropriate rates.
• Rate agreement discrepancies: Over time, elements like fuel surcharges, seasonal changes, or contract renewals could cause variations in rate agreements with carriers. If these changes are not reflected in the invoicing process, it can lead to overcharges. Keep accurate and updated records of every pricing agreement. Review and amend these agreements often to guarantee they reflect current market pricing.
• Surcharges and accessorial fees: The ultimate cost of a shipment can be influenced by accessorial fees like detention charges, fuel surcharges, demurrage, and more. Making sure these costs are reasonable and accurate might be difficult. Clearly define how accessorial costs are approved and make sure carriers offer thorough justification for any extra expenses.
• Duplicate invoicing: System flaws, human mistakes, or deliberate fraud can all cause duplicate bills. Multiple payments for the same shipment could result in large financial losses. Put strong invoice matching systems into action to find and cut down duplicate bills. Modern freight audit systems can highlight possible duplicates and aid in automating this procedure.
• Compliance issue: Avoiding fines and penalties depends on staying updated with ever-shifting laws and compliance standards. Legal problems and expensive audits may follow from non-compliance. Work with a freight audit service provider who specializes in regulatory compliance. They can guarantee your shipping methods are compliant and keep you current on the most recent laws.

The way forward

Freight audits are no longer a reactive activity. Using data-driven insights and technology can help you turn them into a proactive tool for ongoing development. Your partner, Pando.ai, will help you uncover hidden savings, simplify your logistical processes, and get a strategic edge in today's competitive environment. 

Discover Pando.ai's whole range of freight audit and payment solutions to take charge of your cargo expenditure and open the road toward logistic success. 

Book a demo today!