If your freight bills aren’t being audited before payment and/or after payment, you’re losing money. Why? People make mistakes, and even the best automated billing systems depend on the accurate use and proper interpretation of carrier tariffs and rules by …… people.

    Today’s freight bill auditors aren’t guys under green eyeshades surrounded by piles of tariffs in dimly lit back rooms. The process is now mostly electronic, and the recoveries (usually 5% or more) can make pre-audit and post-audit programs into profit centers. If you have no audit program, or just a pre-audit, you should give a recent month of freight bills plus your contracts to a post-audit house. Those companies review paid freight bills, file and manage overcharge claims, and report to their clients what’s been filed and the reasons why. Pre-auditors, however, save your money before payment and file no claims since they only pay what they determine to be correct. Plus they provide specific reasons why payments are reduced or late delivery refunds are justified – to both the shipper and carrier. 

    An extra benefit of using audit companies is their ability to provide 100% data capture – carriers, costs, origin-destination pairs, weights, service levels, delivery times, etc. The better companies offer customized online reporting in Excel or other formats. Detailed studies, including anonymous cost benchmarking against other shippers, are usually available at negotiated costs. At one previous employer, my pre-auditor even agreed to give me one free major study per year, plus additional studies at pre-negotiated rates. Here’s how audit agreements work:

    Most shippers let their post-auditors handle it all, giving them a limited power of attorney to file and collect overcharge claims. The post-auditor receives all carrier refunds and sends a check to the shipper minus the negotiated commission. Or, refund checks can go direct to the shipper, who then pays the commission to the post-auditor (but this option requires extra shipper manpower, doesn’t add any value to the process, and is rarely used). The typical first post-audit commission ranges from 35% to 50%. Second audit commissions rise to 50% or 60% since the easy claims should have been caught in the first audit, and third audits approach 75%. While you would expect every freight bill to be post-audited, small dollar invoices might only be sampled to allow concentration on higher priced invoices, especially if carrier rules only permit a short filing window.

    Pre-Audit & Payment
    Much more common in the small package world is the pre-audit, where carriers send their electronic or hard copy freight bills (and delivery records) to a shipper-designated company which is under contract to the shipper. The pre-auditor examines every invoice for accuracy and either pays the carrier directly (from a shipper-replenished account), or transmits payment info to the shipper to issue checks, in both cases providing reasons for reductions. A small flat fee is paid for every freight bill, usually around $1- $2 per hard copy (due to data entry), and anywhere from $.03 to $.25 per electronic transaction depending upon shipment count and the amount of data collected. Reductions can be negotiated for statement billing, either as a lower fee per transaction or a standard fee per statement plus a lower cost per line item. And the shipper pays no commission, keeping 100% of all identified overcharges and late delivery refunds.

    Best in class shippers use both pre- and post-audits, to catch ongoing and significant errors before payment plus verify pre-audit accuracy. And the post-auditor’s findings can be fed back (using the shipper as the conduit) to the pre-auditor and/or carriers for correction. While it may seem that a post-auditor would soon be out of business, freight bills are still so dependent upon human input and an ever-growing array of accessorial charges and credits that errors will always occur, even at the most technically capable carriers. Knowing this, shouldn’t you be finding and correcting all of your carriers’ billing errors?

    This article is part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants, and educators. In future columns, they will continue sharing their views on a number of Supply Chain topics.

    George Yarusavage, CTL, C.P.M., is a principal in Fortress Consulting LLC, specializing in Transportation and Sourcing issues. He is also the Treasurer of ISM’s Logistics & Transportation Group and can be reached at gyarusavage@yahoo.com, or (203) 984-4957. Membership in the Group is open to all ISM members who are responsible for or have an interest in Logistics & Transportation.