Auditing your freight bills can uncover significant differences
between what you have been charged versus the service you received.
In this QAD Precision Report we look at the pros and cons of
outsourcing freight bill auditing or doing it yourself.
The Pros and Cons of Outsourcing Freight Auditing
With the ever increasing volume and complexity of shipments moving
globally across multiple modes and types of carriers, most companies
think it’s easy to just outsource the auditing and payment of those
pesky invoices to third party freight and parcel invoice auditing providers.
Why do companies choose to outsource? It’s simple. Conventional
wisdom states that when you devote your own resources and labor to
audit your parcel and freight bills, you’re taking away precious
resources that could be spent on your core business. And whether you
recover overpaid freight charges or not, you still have to pay your
employees to audit a paid freight bill one by one by one.
How does third party freight and parcel invoice auditing work? The
process is pretty straightforward:
- Your company sends freight and parcel invoices from the past 180
days to your freight auditor
- Invoices and bills are compared with pricing agreements to
- If no discrepancy exists, payment is authorized
- If a discrepancy exists, your provider works to resolve the issues
- If you are overcharged, a claim is filed on your behalf
- When payment is made, your company receives a check
According to the 18th Annual Third Party Logistics Study of 2014,
shippers reduced logistics costs by 11%, inventory costs by 6% and
fixed logistics costs by 23% on average.
Sounds pretty good right? However, have you taken a moment to truly
consider what you are giving up when you hand over control of your
freight and parcel invoicing and payment processes?
The “Down Sides”
It is fair to say that, on any given day, audit and payment firms
process freight bills worth millions of dollars diligently. Firms
review carrier invoices, and if they uncover discrepancies, these are
addressed and almost always resolved. However malfeasance is not
unknown. Two significant cases came to light in 2013.
what DC Velocity's Mark B. Solomon had to say:
“In a span of less than 30 days this spring, two audit and payment
firms with a combined 80 years in business and that handled an
estimated $20 billion to $25 billion in annual freight spending filed
for bankruptcy protection. The firm’s, Greenville, S.C.-based Trendset
Information Systems and Branchburg, N.J.-based TransVantage Solutions
Inc., shared two characteristics: Both are accused of diverting or
embezzling more than a combined $100 million in shippers’ funds that
were due their carriers. And both companies, as well as the monies
that vanished with them, aren’t coming back.”
“According to documents, TransVantage listed about $71.2 million in
assets against $41 million in liabilities. But $71 million of that
asset base is pegged to what is seen as a highly dubious claim against
its largest creditor, industrial giant Johnson Controls Inc. (JCI).
JCI, for its part, sued TransVantage, saying it was defrauded to the
tune of $17 million over a multiyear period.”
“Multinational companies are complex creatures with many moving
parts. As a result, it is simple for an already-outsourced process
like freight auditing and payment to fall through the cracks. It took
Johnson Controls more than 17 years to uncover the TransVantage scam.”
“For the dozens, perhaps hundreds, of affected shippers, the legal
ramifications are unclear. The freight audit and payment sector is not
a regulated entity like insurance.”
Rate overcharges and duplicate payments are common but do not
represent the whole picture. Costs for shipments that are billed to
the incorrect account and accessorial charges that you didn’t expect
or authorize (e.g. Saturday delivery) or that were incorrectly
calculated (e.g. fuel surcharges). These types of invalid invoices and
invalid/incorrect charges on invoices can represent a significant sum.
Typically, the best freight and parcel invoice audit and payment
companies work on a contingency basis, so there are no costs unless
overpaid/invalid charges are found. What you may not realize is that
what you are paying is likely a significant amount aimed directly at
your bottom line.
We hear you when you say, “But it’s easy and convenient and doesn’t
cost as much as doing it ourselves and we get really great data for
reporting.” What you may not fully understand is how technology has
changed and how simple this can be to do in-house through intelligent automation.
Different third party freight auditing companies provide different
services, from cost breakdown to reporting. For example, you may be
getting line item G/L and Sub G/L cost allocation for what your actual
costs are. If you are, that’s great! Though there are some things to
- Does your provider know your rules for how you allocate costs?
- How easy is it to communicate and effect a change to your rules to
- How do you validate the change has been made correctly?
- Discrepancy Resolution
From a labor perspective, your third party freight-auditing vendor
does the heavy lifting for you when it comes to resolving
discrepancies on your invoices. They not only identify discrepancies,
but also perform issue resolution on your behalf. You will work with
your provider to predetermine the course of action to take on
different types of discrepancies for those issues where manual
intervention is required (e.g. invoice amount is higher than rated
amount by more than n%). In essence, there is no additional labor cost
If you choose to deploy a freight bill audit and pay solution, your
staff would work to perform issue resolution. While you may still
predetermine the course of action to take on different types of
discrepancies, your staff would need to resolve the issues. Where
freight bill audit and pay solutions outshine third party freight
auditing vendors is that you maintain control over the resolution of
the issues. Typically, freight bill audit and pay solutions do make it
easy for you to resolve discrepancies in multiple ways:
- Workgroup/user security controls what each group or user can see
and do within the solution
- Payment authorizations can be configured and controlled at the
workgroup and/or user level
- Tolerance values may be configured on a percentage or currency
value at multiple levels including at the line haul, accessorial and
total charge levels
- While you may need to expend labor to resolve discrepancies with a
freight bill audit and payment solution, typically over time the
volume of discrepancies decreases dramatically as you work with your
configuration of tolerance values, your carriers and your carrier
Where is the data?
Typically, third party freight auditing vendors receive a file of
your shipments and receive invoices from the carriers. They then
match, audit, resolve and pay the “authorized” invoices and/or return
an “authorized for payment” file back to you. They can generate
reports for you (e.g. cost breakdowns by G/L and sub-G/L account so
that you can see the fully laden cost of your shipments by line item
or perhaps even carrier scorecards).
That all sounds really fantastic until you sit down and really
consider what information is important to your specific organization.
What do you do if you want to customize a report? What if you need to
report on additional data elements for the transaction beyond what the
third party freight auditing vendor has? Do you have them create and
format data so that you can populate your data warehouse and run you
own reports against it? How much are they charging you for that? How
long does that take?
This is where a freight bill audit and pay solution may be a better
answer for your company. You will have all of the shipping data, all
of the freight invoices, all of the resolution details, all of the
audit trail (including who authorized what and when) and the
“authorized payment” file. Quite simply, more data gives you more
options and visibility. Your freight bill audit and pay solution
likely has reporting capabilities and/or a data structure that
supports ETL to your data warehouse. Another ancillary benefit is that
your information resides with you and is not in the hands of a third
party. Simply put, you will have custody and control of your data to
report on as you see fit.
The “Up Side”
Many companies don’t realize that what they’ve grown accustomed to
over the past several years is changing. For many companies, the risk,
cost and control of auditing freight and parcel invoices needs to be in-house.
According to the results of the annual 2016 Transportation Payment
study, conducted by American Shipper:
- Companies using a freight auditing system are likely to pay less
for their freight invoice handling.
- When looking at the responsibility of freight invoice handling,
more than 75% of larger firms consider freight audit and payment a
responsibility of the Transportation/Logistics Department. Larger
shippers approach freight payment in a different way, compared to
other forms of payables. Smaller companies are more likely to handle
freight invoices in a centralized process, with the Finance
Department playing a significant larger role.
- As earlier stated, the size of a company has almost a direct
influence on the approach towards freight audit and payment. Because
technology is utterly relevant, it makes sense to highlight how best
in class companies differ from laggards. Less than 25% of the
involved professionals in the survey indicated the use of a pure
manual process (no usage technology at all for transportation payment).
- Breaking down the remainder of technology users, there are some
notable results. 3PL’s are making more use of an embedded freight
audit and pay function inside their transportation management system
(TMS) than shippers.
- 15% of the companies (surveyed) are using an outsourced FAP.
A strong freight bill audit and payment solution is an important
element in an organization’s transportation management process.
Benchmark your organization’s current freight bill audit and payment
solution with the following list of must haves. A world-class solution
should offer the following:
- Capability to reduce unnecessary charges with accessorial identification
- Address correction function to keep you in front of address
corrections to avoid additional charges
- Connectivity, to your carriers, your AP and logistics systems.
Ideally, you would want your freight and parcel invoicing system to
- Globally enabled automation to simplify the auditing for all of
your invoices, regardless of carrier, mode, geography, language or currency
- Complete visibility into your transportation operations with in
- Affordability. The solution needs to be affordable to obtain,
implement, staff and run
Freight Bill Audit & Pay (FBAP) Solutions
Freight bill audit and pay solutions provide the supply chain
analytics and expertise to give shippers an edge. In the past, many
companies outsourced their freight bill audit and payment. By moving
this function in-house, companies gain more visibility and control
into the extensive reporting capabilities available. The ability to
see the whole picture can help you identify consolidation
opportunities, cut unnecessary freight costs by making smarter
A freight audit is an integral part of managing supply chain costs
and provides an analytical, financial review of invoiced costs versus
supplier agreements. This may result in a logistics savings of four to
seven percent! Companies that process a high volume of freight
transportation bills/invoices without auditing them for accuracy are
likely overpaying a significant amount of money without knowing it.
QAD Precision's Freight
Bill Audit & Pay automates the process of approving freight
bills received from carriers and identifying discrepancies between
anticipated carrier freight costs and the actual costs received within
the carrier invoices. This will not only help your organization avoid
overpayment and improve your transportation and logistics performance,
but can save you significant labor and human error costs.
QAD Precision’s dedicated team of solutions consultants have decades
of experience and are available to assist you in examining your
current processes, leveraging industry best practices and can provide
a roadmap to help you achieve your objectives in a timely, cost
efficient and comprehensive manner.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision (Precision Software), a division of QAD Inc., provides
trade management, transportation
execution and multi
carrier shipping software solutions from a single, integrated
platform. Preeminent industry leaders in every region of the world
rely on QAD Precision’s global support centers to leverage thousands
of carriers and manage millions of shipping transactions every day.
Our open architecture easily integrates with Enterprise Resource
Planning, Warehouse Management Systems and legacy solutions. An
ISO-certified company, QAD Precision assists companies to minimize
shipping costs, optimize first mile and last mile deliveries, automate
free trade agreement compliance, avoid customs delays and mitigate
the risks associated with dynamic trading environments to
maximize their competitive advantage. QAD Precision’s customers span
multiple industries including banking and finance, life sciences, high
technology, retail, industrial, automotive, higher education and
public sector as well as logistics providers. For more information
about QAD Precision, visit www.qadprecision.com.
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