Gain insights into how to strengthen your freight payment process and build financial resilience with this guide on freight pre-audit.
Gain insights into how to strengthen your freight payment process and build financial resilience with this guide on freight pre-audit.
Transportation in the U.S. alone moved 19 trillion dollars worth of shipments in 2022, which indicates an equally staggering number of freight invoices to be paid.
Agreed, this already sounds like people are drowning in a sea of freight invoices.
Considering that over 39% of invoices likely contain errors, the last thing your business needs at this point is to pay the wrong amount. This calls for an audit. Yes, a comprehensive review of each document is essential to ensure they’re either accurate or sent back to the carrier for revision.
Spotlight on freight pre-audit
To use this cost-saving strategy effectively, let's clear up the basics.
Freight pre-audit is a review method that verifies a freight invoice before sanctioning payment. Its scope extends to validating related documents, shipping verification, and service confirmations.
While this may seem like a twist on freight post-audit, there's a world of difference. Freight pre-audit is preventative and seeks to mitigate risk from the get-go. In contrast, post-audit adopts a corrective focus to improve future processes at the expense of some efficiency loss.
Acting as a screening stage between invoice submission and payment, freight pre-audit has three primary purposes:
- Ensuring the correct payment value is released.
- Adhering to compliance related to INCO, logistic agreements, and payment guidelines.
- Avoiding the agonizing and resource-intensive process of payment recovery.
To understand its need, we move on to freight pre-audit benefits and their impact on the financial leg of supply chain excellence.
Benefits of freight bill pre-audit
Setting up a checkpoint before payment sounds like a smart strategy, right?
Well, it is. Here are five benefits of identifying potential issues before payment:
Guaranteed timely payment
Detecting inaccuracies in invoices and related freight documents early on allows carriers to make necessary revisions before the payment due date. This ensures timely payments and eliminates the worry of payment recovery.
Transparent relationship with carriers
Yes, timely payments to the carriers are an excellent start for a business relationship.
That said, avoiding a probe into inaccuracies after payment helps maintain a positive note in all interactions. Freight pre-audits also increase transparency, improve business processes, and foster trust.
Ultimately, you have a healthy and strong rapport that ensures business success in the long term.
Reliable data insights
Many strategic decisions depend on insights from freight cost visualizations and OTD reports. Overpayment and invoice errors result in weak insights, fluctuating data sets, and, hence, incorrect decisions. With effective freight pre-auditing, the mapped freight costs remain unchanged. This results in reliable and actionable data insights even after payments are released.
Control over cash flow
Freight pre-audits can help your business have better control over cash flow:
- Often, resources are blocked based on forecasted expenses. Pre-auditing reduces unnecessary payments, helps unblock resources, and improves cash flow.
- Pre-audit processes also review rates according to cargo flow maps and sequences. This provides data-driven insights and leverage that facilitates rate negotiation.
- Pre-auditing transparency and improved timely payment increase the chance of negotiating favorable payment terms and extended credit periods. This is a massive advantage for financial stability and cost optimization.
- Accurate financial data from pre-audits can improve your ability to forecast cash flow and make informed decisions about resource allocation.
Protection against financial losses
Here’s how this form of proactive logistics auditing prevents financial losses:
- Identifies and eliminates hidden fees, surcharges, or errors that may have slipped unnoticed.
- Prevents overcharging by scrutinizing invoices. It ensures that your business only pays for the services it receives.
- As a safeguard against fraudulent practices, these cost-saving strategies reject inflated rates or false charges.
- With a systematic approach, detailed pre-audit reports also ensure that your financial records are accurate. This provides a reliable foundation for decision-making and concrete evidence for external compliance audits.
To equip you with explicit references, here are a few errors and overcharges that are screened during freight pre-audits:
- Accessorial fees: Carriers impose these additional charges for services beyond basic transportation. While they are often necessary, they are also prone to overcharging. Here are some common examples:
- Residential delivery fees: Carriers may charge excessive fees for home deliveries.
- Liftgate fees: Carriers may overcharge for using a liftgate, even for shipments that do not need manual loading.
- Fuel surcharges: Fuel surcharges are additional charges carriers impose to offset the rising fuel cost. While these surcharges are generally justified, they can be miscalculated or applied unfairly.
- Demurrage charges: Another frequent catch during pre-audits is demurrage and detention charges. These are penalties imposed on your business for failing to load or unload shipments within a specified time frame. They are often screened because the responsibility and reasoning remain unclear.
- Other common errors: Here are a few more common errors that usually come from typos or lack of clarity:
- Incorrect rates: Carriers may apply incorrect rates for specific routes, modes of transportation, or types of shipments.
- Duplicate charges: You may be charged twice for the same service or shipment.
- Missing services: Carriers may fail to provide the services for which they are contracted.
- Overcharges for additional services: Carriers may overcharge for additional services, such as insurance or customs clearance.
Achieving cost optimization excellence with Pando
Freight pre-audits can transform your freight payment process and even your relationships with carriers. When implemented effectively, they ensure timely payment, avoid payment recovery, and instantly improve control over cash flow.
Even so, no matter how crucial freight pre-audits are, they are still quite resource-intensive and require more than just a skilled workforce. That’s what Pando.ai solves as a supply chain AI leader.
Pando.ai delivers your business with an AI-powered solution to streamline your audit process and supercharge your workforce capacities (yeah, your employees might just get a cape). The solution features review process automation, rate card management, and customized contract renewal.
If you feel that your carriers' rates are inflated, maybe it's time you did a pre-audit of your freight invoices with Pando. Book a demo.
