How Freight Audit Helps Boost Cash Flow and Profitability
Managing costs have always been an important and challenging task for Logistics companies across the world. Now, it’s increasingly becoming a priority for improving profitability. According to research, nearly 80% of Logistics companies are overpaying their vendor partners for services delivered. Besides, they do little to correct payment error; this can cause negative cash flows and a decline in profitability.
So, what is so complex and dynamic about current day's Logistics industry? Well, for starters there are a number of different charges, discounts, fuel surcharges, and rate indexes which complicate the billing process. This complexity makes it challenging for Logistics companies to do an efficient internal “third eye” check on excess billing. It is paramount for companies to perform ongoing Freight Audit and to ensure tight freight control in order to improve cash flow and profitability.
How does Freight Audit work?
A Freight Audit Service Provider eliminates excess billing by running dedicated audits on transportation and logistics services invoices. This helps claim money back from suppliers wherever excess billing has occurred. As a best practice, service contracts and agreements are referred to during the audits. A typical audit process entails the following:
- Is the correct Freight Class applied to your freight invoice?
- Did the supplier make mistakes in the calculation (right freight rate applied)
- Do discounts match your service agreements?
- Check for duplicate invoices.
- Are all applicable taxes correctly included on the invoice?
Freight Audit: Internal or outsource?
According to the 2018 Third-Party Logistics Study, 34% of companies surveyed outsource Freight Auditing and payment services. That doesn't mean the remaining 66% perform Freight Audits internally; there are still plenty of companies that do not perform audits on their freight invoices.
Should companies be looking directly for an outsourced solution, or attempt to keep this function internal? The answer to this question depends on a company's shipping volume, the complexity of their transportation flows and the specifics needs around freight data.
4 Core Benefits from Outsourcing Freight Audit:
1. Control Costs
· Meticulous audit procedures and process management by Freight Audit service providers ensures payment of the exact rate as per contract / agreement placing a firm control over costs.
2. Cash flow and Profitability
· While the industry is well known for best practices in invoice payment cycles, tight cost controls augment cash flow and improves profitability.
3. Reduction in add-on resources
Freight Audit outsourcing reduces the additional and expensive hands required to perform repetitive and frequent audits on invoices, contract compliance check etc. These tasks seem simple but can be tedious and time consuming. Importantly, using internal resources for these tasks can negatively impact operating margins as well.
4. Increase Visibility and Management Reporting
Freight Audit increases visibility for top management. It helps identify historical errors and cost overruns in invoicing which typically happens when incorrect freight classes are used while preparing invoices. Besides, Freight Audit streamlines the invoicing process and can save money, time and resources.
While Freight Audit is a big step towards improving cash flow and profitability, the true success depends on who does the audit. It distils down to identifying and aligning with the “Right” outsourcing partner.
It will be worth the time and effort for Logistics companies to connect with a managed business process services organization such as Cenza to evaluate a business process fit. Cenza provides Logistics companies with effective Freight Audit solutions for all transportation and logistics related services.
About the Authors:
Nicolas Reitzel is a versatile international Logistics and Transportation professional with more than 20 years working experience in the transportation, logistics and supply chain industries. He has extensive strategic and operational experience in developing, transforming and optimizing businesses, processes and IT for transportation and logistics organizations across the globe. A Danish national, Nicolas has lived and worked in Hong Kong, China, Singapore, Indonesia, South Korea, Thailand, Netherlands, France and Denmark.
Deepak Amirtha Raj is a Research & Strategy Analyst at Cenza. He focuses on Business Strategy Research, Emerging Technologies and Advanced Analytics. He studied business at Saint Joseph’s College and had previously worked with Royal Bank of Scotland as Business Process Analyst.