Business relies on logistics to get products transported from point A to point B. In the majority of cases, the shipper pays the freight bill. However, buyers can also arrange for freight and pay freight costs. You could see materials moved through surface transport such as rail, road, and courier and also by sea and air for local and international supplies. The freight bill you pay can be made up of various items such as actual freight cost and other relevant service heads. Logistics companies prepare the freight invoice and the shipper or buyer pays. However, not everything is 100% accurate in such freight bills, which is why you would benefit by opting for freight bill audits conducted by outsourcing auditing services.
Components of the freight bill
The total amount of the freight bill is made up of a number of sub-components.
- You could be charged for full truckload or part truck load (termed less than truckload or LTL).
- In the case of the latter, you may be charged on a weight and distance basis or weight/volume-distance basis for actual freight.
- There may be an additional fuel surcharge
- Handling and loading/unloading charges find mention
- If goods are transshipped then there are additional transshipment charges
- Transporters may levy additional handling charges and miscellaneous costs.
- Transporters may pay toll taxes and entry taxes which again find their way into the freight bill.
- Shippers may charge warehousing charges and then penalty if goods not cleared and taken delivery of in time
Freight may be charged based on the classification of the product and as such wrong classification could attract a higher freight charge. Then there is a base minimum price regardless of weight or volume, known as an absolute minimum charge.
As can be seen, there are quite a few variables and this gives rise to errors of commission or omission. The net result is that either the shipper or the buyer pays more than they should. If this continues then, over the period of one year you could incur substantial costs. This can be controlled through timely freight auditing done by outsourcing auditing services.
Why outsource freight auditing
Freight billing by freight Logistics Company is usually handled by billing clerks. For them, it is always advisable to play safe and levy the higher charge. If it is a borderline decision such as whether to decide on charging by weight or volume, they will opt for volume which will result in a higher freight charge. The calculation, sometimes, maybe wrong.
If you stick with only one freight company and they levy “additional charges”, you will find that these add up to a substantial amount. Are these justified or not? A freight audit can show up these and other issues and helps you to restructure service arrangement and freight rates to help bring down freight costs and detect malpractices and errors of omission or commission. It may not always be the carrier’s fault; the shipper may have furnished wrong information such as wrong dimensions or weight leading to an excess charge. Conversely, wrong information could also lead to a lower than usual charge leading to a loss.
Why not use your own accounting personnel? The reason is that your accounting personnel may not be familiar with the way the freight billing works and will simply accept at face value the bill amount. Outsourcing auditing services, on the other hand, go into details and maintain a knowledge bank of all that is involved in freight and the relevant charges. They can easily identify and pinpoint areas where there are errors or instances of overcharge or unnecessary charge.
If you are into international shipping of your products then there is an additional wrinkle in the form of a bill of lading and the freight invoice. The bill of lading shows details of an item but not the costs. Your internal staff may not be able to tally details.
Freight bill audit confers all-round benefits to the shipper, buyer, and logistics
If you are a buyer then freight bill auditing will help you to reduce the freight cost burden, identify points that lead to more expense, and work out modalities to aggregate shipments or processes that will make your product more competitive.
If you are the seller then you have better control of the freight pricing process and you get better insights into freight costs you are charging your customers. By outsourcing auditing services you can get very price and accurate reports and information. You will gain insights and you can negotiate better rates with the logistics company.
Logistics companies benefit by outsourcing auditing services since they can get detailed insights into their processes and can identify errors. You can improve your freight rates and retain customers besides attracting new ones. Auditing of freight bills introduces transparency into your operations.
Outsourcing auditing services can do a lot for you besides mere freight bill auditing, such as giving you insightful reports and information leading to better decision making.
About the author: Sumit Rana is a Content Strategist and Growth Head at FinAcc Global. He is fascinated by reading publications on business and has profited many economic companies in increasing their online impression.