Freight pre audit: A proactive approach to cost management

Maximize savings and streamline processes with a proactive freight pre audit approach. 

Auditing an invoice always carries the "prevention is better than cure" motto. Crucial for every supply chain, right? 

Leaders, managers, and entrepreneurs will all agree detecting issues before payment is more efficient. That way, there's no need to juggle process improvement with revenue recovery. 

In 2023, US trucks hauled 11.8 billion tonnes of cargo—generating countless invoices. Each invoice error wastes an account team's hours just to recover costs and protect profits. 

How can you process 100% accurate invoices? You need to follow a comprehensive freight pre-audit process. 

Read this article to learn everything you need to make the most of this cost management approach.

What is freight pre-audit?

Freight pre-audit is the process of systematically verifying shipping charges before payment authorization. 

This proactive approach examines billing elements against contracted terms while shipments are in transit or immediately upon delivery. Here are a few common elements that are part of this process:

• • Carrier rates, including cost per kg, container, or even pre-agreed flat fees
  • Accessorial charges such as detention fees, demurrages, bonding activities, liftgate services, or re-delivery fees
  • Service level utilization such as FCL, LCL confirmation, ad-hoc movement emails, and workflow approval
  • Shipment information like net weight, gross weight, dimensions, and item count
  • Fuel surcharges to help review fuel price fluctuations or transport distance

The importance of freight pre-audit

Advanced invoice verification and issue prevention are great perks, but with an ideal freight pre-audit, you can even achieve more. 

Here are five key reasons to break down why freight pre-audit is vital:

• • Pre-audits catch 98% of billing errors, compared to 65% with post-audit methods.
  • Prevents errors that help recover 3-5% of total freight spent on average 
  • Verifies billing and aligns with negotiated terms to avoid disputes and improve compliance 
  • Ensures accurate payments and maintains financial stability so that there is no more hassle with payment and recovery
  • Pre-audits cut payment processing time by 60%, which leads to smoother accounting and better relationships with your carriers 

U.S. auto parts manufacturer Accuride has seen significant benefits from Pando's freight auditing system. According to Acurride's logistics managers, "The invoice audits are invaluable and offer a detailed view of total logistics spend."

Core objectives of a freight pre-audit 

The end goal of adopting a freight pre-audit process is to optimize logistics and financial operations. Here are the core objectives that this approach targets:

• • Error prevention: To reduce costly errors, identify and correct billing discrepancies before payment.
  • Cash flow optimization: Avoid capital tie-ups when resolving billing issues to ensure healthy cash flow. 
  • Process efficiency: Streamline payment workflows that reduce processing times and administrative burdens. 
  • Data accuracy: Maintain clean, reliable data for analytics, enabling smarter decision-making. 
  • Compliance: Ensure adherence to regulatory requirements and contractual terms to foster trust with carriers 

Now that you know the end destination and key milestones, let's discuss the components of a freight pre-audit.

Key components of an effective freight pre-audit

An effective freight pre-audit is like a meticulous detective. It involves delving into the nitty gritty and justifying every dollar spent on a service. 

Here are the components that keep every audit effective:

• • Invoice verification: Scrutinizes charges against agreed rates, including overcharges from accessorial fees. It also verifies spot rate confirmations, repeating airway bills, and duplicate invoices. This pre-audit component maintains shipment details accuracy and avoids overpayment.
  • Compliance checks: This review ensures freight invoices align with contractual terms and prevents costly carrier disputes. It also keeps your business compliant with legal aspects like insurance, liability, and payment terms.
  • Shipping documentation validation: Even with correct rates, the wrong dimension could easily skyrocket the overall payable value. In this regard, validating shipping documents confirms shipment details, ensuring net weight, dimensions, and services match the invoice.

Without these checks, businesses risk financial leaks and strained relationships with carriers. A solid pre-audit transforms these risks into opportunities for efficiency and trust, setting industry benchmarks.

Implementing a freight pre-audit process

Creating a successful freight pre-audit process requires a structured, phased approach. Here's how to do it:

Phase 1: strategic planning

Start by laying the foundation for a seamless audit process. Planning keeps all elements tuned toward achieving business goals. 

Here are the basic steps involved in the strategic planning phase:

• • Conduct baseline assessment: Analyze current invoicing processes to identify gaps like inconsistent invoice validation and delays in payment approvals.
  • Define scope and objectives: Determine the audit’s coverage—carrier rates, service levels, etc.
  • Establish implementation timeline: Set deadlines for each step. For example, one week to finalize invoice format changes and two weeks to train staff on the new invoicing software.
  • Allocate resources: Assign roles like an accounts payable specialist for invoice entry and validation, and a finance managers to review and sign off on payments. Also ensure the right tools are available, such as accounting software and OCR scanning tools for quick processing and digital invoice conversions.

Phase 2: process design

With the details and roadmap mapped out, you begin the freight pre-audit process design. This involves creating workflows and protocols to guide the audit process smoothly and efficiently. 

The process phase takes into account the following elements:

• • Create verification protocols: Develop a framework to cross-check invoices, comparing them against contract terms, shipment details, and carrier rate agreements. For example, verify that fuel surcharges match the agreed rate tables and check for duplicate invoices.
  • Develop exception handling: Prepare for scenarios where invoices don’t match terms, such as mismatches in freight weight or incorrect accessorial charges. Design steps to flag discrepancies, assign them to the appropriate team, and establish escalation paths for unresolved issues. 
  • Implement approval workflows: Set up steps for invoice approval, including initial validation by the Accounts Payable team, secondary checks by department heads, and final sign-off by the Finance Manager. Include deadlines for each stage to ensure timely processing. 
  • Design communication frameworks: Create templates for notifying vendors of discrepancies and escalation protocols for internal teams. For example, standardize emails that request clarifications on incomplete billing details or missing shipment documentation.

Phase 3: technology integration

The third pillar of a robust freight pre-auditing process is technology. Integrating the right automation technology and machine learning algorithms helps boost accuracy and minimize manual efforts. 

Consider incorporating the following steps for a seamless technical integration:

• Select pre-audit software: Use advanced solutions like Pando for automating invoice checks, managing freight contracts, and tracking billing discrepancies in real-time. For example, Pando can match shipment data with carrier invoices to eliminate manual intervention, speeding up the pre-audit process.
• Configure EDI connections: Integrate with carriers and partners to enable seamless data exchange. For instance, configure EDI 210 for freight invoices and EDI 214 for shipment tracking updates. This integration ensures real-time visibility and reduces manual errors.
• Establish data validation rules: Set automatic checks for discrepancies, such as rate mismatches, missing shipment details, or duplicate invoices. For example, set a rule to flag invoices where the weight exceeds what’s recorded in the Bill of Lading, or where accessorial charges don’t match agreed rates.
• Interface with systems: Connect the pre-audit software with your ERP (e.g., SAP or Oracle) and logistics platforms like TMS. This integration allows for automatic syncing of shipment data, carrier rates, and payment statuses, reducing delays and improving accuracy.

When you go for experts like Pando for freight-auditing and payment solutions, you can rest assured of complete support from customization to implementation.

Freight pre-audit best practices

Here are some proven freight pre-audit best practices for long-term impact and efficiency:

• • Leverage automation: Automate routine checks and invoice verifications to reduce manual errors and improve efficiency. Adopt algorithms that flag discrepancies in real-time.
  • Maintain accurate records: Update all shipping documentation, contracts, and carrier agreements. Also, these records should be stored systematically for easy reference during audits. 
  • Establish a dedicated audit team: Assign specialized roles to individuals who understand freight operations, contractual terms, and billing processes. This ensures consistent, informed decision-making. 
  • Standardize verification protocols: Create clear, standardized procedures for checking invoices against contractual terms. This is vital to reproducing the quality of audits and minimizing mistakes.
  • Monitor and track metrics: Periodically review your KPIs, like error rates and recovery savings. This enables you to spot areas for improvement easily.
  • Regular training and updates: Keep your audit team updated on new technologies, regulations, and company policies. This is particularly effective for elements like customs duty calculations that are always evolving.
  • Integrate with existing systems: Avoid multiple data points in different platforms. Integrate your freight pre-audit process with other planning interfaces to reduce redundancies and errors.
  • Foster communication across teams: Create channels for collaboration between accounting, logistics, and audit teams. This facilitates quick conflict, discrepancies, and approval management.

Challenges in freight pre-audit

Freight pre-audits sound simple, but they come with surprising challenges. Here’s a look at the common challenges—and how to tackle them head-on:

1. Data quality issues

Inconsistent or incomplete shipment data are one of the common errors in every freight pre-audit process. In fact, they result in blocked payments and delay the overall invoice processing time. Consider implementing automated data validation and enrichment tools to keep records accurate and complete. In fact, adopting these solutions can reduce data-related errors by 85%.

2. System integration

Integrating complex freight pre-audit solutions into your existing system can be daunting. It becomes a significant challenge to manage multiple systems without intuitive interfaces and efficient algorithms. 

In this regard, an ideal API-first platform, like Pando, can prioritize seamless integration of freight pre-audit solutions with your existing systems. This approach can deliver 70% faster implementation and ensure smoother data flow across platforms.

3. Change management

A sudden change in the system often brings resistance from employees in the organization, especially when it is about working with a new process and technology. In such situations, managing your team's competency and readiness becomes a challenge for your business development. 

Offering comprehensive training and clear communication strategies would be an excellent move to ease the transition. In fact, it has been proven that effective change management has led to 92% user satisfaction.

Leveraging technology in freight pre-audit

With how extensive freight pre-audit is, technology is key to reducing manual efforts and improving impact. Here are cutting-edge tools that revolutionize the process:

1. Automated rate management

Imagine real-time rate validation and automatic carrier selection—no more manual errors or delays. With dynamic routing guides integrated, costs are optimized from the get-go. Automated rate management leads to 99.8% rate accuracy, ensuring you never overpay.

2. Machine Learning algorithms

ML algorithms define a system's capability to learn from past patterns, predict costs, and spot fraud before it happens. With anomaly detection in place, manual reviews are a thing of the past. This technology can reduce manual reviews by 75%, saving you valuable time and resources.

3. Blockchain integration

Smart contracts with blockchain come with automatic compliance. In fact, they are backed by immutable audit trails and freight spend visibility—no more disputes or delays. Blockchain slashes dispute resolution time by 90%, bringing speed and certainty to your processes. 

4. API connectivity 

Real-time data exchange means your systems talk to each other seamlessly. Establishing API connectivity offers customized visibility and reduces errors across all platforms. This feature boosts data accuracy by 85%, making every freight invoice audit faster and more reliable. 

Adopting innovations like AI in freight pre-audit systems isn’t just a trend—it’s a strategic advantage. Next, let's explore measuring success in the freight pre-audit space.

Measuring success: key performance indicators (KPIs) for freight pre-audit

To assess the effectiveness of the freight pre-audit process, here is a set of KPIs your organization must track: 

Financial metrics 

Here are four KPIs vital to focus on achieving lower cost per invoice: 

• Cost per invoice processed: Measures the efficiency of the audit process 
• Error prevention rate: The percentage of errors caught before payment 
• Recovery percentage: Percentage of overcharges identified and recovered 
• Processing cost reduction: Track how much the pre-audit process lowers operational costs 

Top performers achieve a $1.23 cost per invoice, compared to the industry average of $3.90. 

Operational metrics 

Beyond just finances, here are a few freight pre-audit KPIs that help drive your team's operational efficiencies: 

• Audit completion time: Measures how quickly audits are completed. 
• Exception resolution rate: Percentage of discrepancies resolved. 
• System uptime: Ensures the platform’s reliability. 
• Data accuracy percentage: The level of accuracy in processed data 

Did you know? Industry leaders maintain 99.7% audit accuracy. 

Compliance metrics 

Financial transactions have an intricate connection with a business's legal, commercial, and ethical guidelines. Here are the KPIs that you need to keep an eye on to make sure you are compliant: 

• Contract compliance rate: Line-wise measure of the percentage of audits meeting contractual terms 
• Regulatory adherence: This KPI tabulates if invoices abide by legal and regulatory clauses and are in compliance with relevant regulations. It also involves the number of instances where it has not 
• Documentation accuracy: Tracks the instances where both shipping and billing documentation are correct 

The best-in-class organizations achieve 99.9% compliance rates with their freight pre-audit process. 

Regain freight cost control with Pando 

Freight pre-audit is a vital screening process that prevents errors from slipping into payment workflows. It also addresses recurring billing issues, protecting your finances from unnecessary losses. 

That said, manually reviewing so many billing elements is too extensive. Consistent, accurate, automated invoicing processing becomes seamless with the technologies and best practices we've discussed. 

Effective freight pre-audit requires a mix of technology, strategy, and expertise. That’s where Pando excels. It offers AI-powered freight auditing with an interactive, analytical dashboard and machine learning algorithms. It also delivers EDI integrations and customizable rule-making tailored to your business. 

Ready to adopt proactive cost management strategies? It’s time to explore Pando. 

Book a demo today!