Why should you reconcile your freight invoices?
Many clients ask, ‘Do we really need to do this, aren’t spot checks sufficient?’
The short answer is ‘No!’
The long answer is, ‘It’s just like insurance; you don’t appreciate it until something goes wrong.’
Time and time again we have seen carriers whose invoices are correct for a period and then something suddenly changes. Maybe it’s a rate change, maybe it’s a zone file change, or a transfer of an account. Sometimes carriers change things unbeknownst to the customer and as a result their invoice falls into error. Unless you are regularly checking every con note these changes are missed and they can go on for months, or years sometimes; costing you tens of thousands of dollars.
Our Carrier Invoice Reconciliation (CIR) service works as a warning system for changes in warehouse staff behaviour; in carriers’ rating procedures; and even in carriers’ software systems, to protect you before the errors start to add up!
Think of it as the canary in the coal mine that lets you know something is amiss, and you’d better get to the bottom of it before it costs you a lot of money!
Just as you would never go without transport insurance for high value products, or health insurance for your family, a CIR service is insurance against unexpected freight cost rises.
What other benefits flow from checking carriers’ invoices?
To properly reconcile a carrier’s invoices, you need to have a 3rd party Freight Management Software (FMS) system, or a manifest data file, so that you can match an independent source of data against the data from the carrier’s invoice. FMS systems will estimate your consignment cost, (based on your carrier rate cards loaded into the system), as you process your orders.
By regularly checking your invoices you will also know when your freight data and the carriers’ rates data are out of sync and put in place a process to resync both data sets. This may include investigating whether the carrier has advised someone in your company of a new rate increase or, has implemented a new surcharge, for example. When using an FMS system for this process you should always proactively advise your FMS vendor of these changes ahead of time, if known. This ensures the data in the FMS is always accurate.
This flows through to the value of any Business Intelligence reports you use from the system. If the pricing data is not accurate, then your management reports have eroded value, and changes you make to your processes based on these reports might not have the impact you had expected.
When using a least cost carrier selection feature of your FMS system, keeping these rates current and in sync ensures a more accurate freight cost price for confident selection based on economical criteria from your warehouse staff. If you uncover carrier selection mistakes or unauthorised transactions you can always use this information for operator training to ensure highest operator performance and compliance. You can be alerted of this through a B.I. Report.
Working on behalf of our clients, we have many examples of invoicing errors; realising tens of thousands of dollars in ongoing savings.
Cubic Conversion change:
- We were asked to do an audit of a new customer’s invoices.
- With no communication, 6 months prior to the audit, one of their carriers changed their cube from 167 to 250 kg/M3.
- This resulted in a 20% price increase over the 6 month period; costing them tens of thousands of dollars.
- Routine checking would have uncovered this change within one week, which would have resulted in switching to a new carrier or renegotiating before these freight costs could hurt them.
Carrier Billing System error:
- A prospective customer had one of their carriers mistakenly put through an unauthorised general price increase when the carrier updated their own billing systems.
- When we conducted an audit for them, we found the error, secured the required credit and reversed the rate change.
Outer Metro Zone change:
- Another prospective customer moved their warehouse and switched to a new carrier who had different postcode zones to the previous carrier.
- Several months later they engaged us for a freight audit and we uncovered an outer Brisbane metro zone charge as opposed to the expected Brisbane metro charge.
- The resulting credit was $18,000 which took months of work to reverse and secure the credit.
- Regular reconciliation or, taking advantage of our freight review process prior to engaging the new carrier, would have picked up this error straightaway; saving the $18,000 in cash flow and all the work to renegotiate and receive the credit.
Carrier accounting error:
- A major carrier routinely changed dimensions of our new customer’s skids to those of a pallet i.e. 1.2m x 1.2m
- This resulted in significant overcharges and increase freight costs by 15%
- We assisted them with obtaining the relevant credits for this unauthorised practice
To get the most out of reconciling your carrier invoices you need an expert in freight. With all due respect to accountants, they are not specialists in the area of freight invoicing; cubic conversions, surcharges and levies being examples of hidden costs in the freight price that need to be uncovered. A person who is expert in both of course is even better. And a person who is expert across a range of different industries i.e. FMCG, Building & Construction, Automotive, etc., plus all 4 modes of transport, plus a person who is exposed to a wide range of carriers; knowing their individual systems, is the best choice for ensuring all errors and process changes are picked up.
If you want to do this work in-house, the setting up process for automating the reconciliation of your invoices requires: in-depth training; a person who thoroughly understands freight charges; and can properly interpret and facilitate data for capturing all credits and can trouble shoot issues such as carrier rate changes. Having someone who can advise on rising freight costs and how best to alter the trajectory; whether the fault lies internally or externally, and what next steps to take, is ideal.
What does the ROI look like?
Manually checking invoices is obviously too expensive with high volume and/or high complexity of freight type and pricing structures. Having an independent source of data, (i.e. an FMS system, or manifest data file), can also provide some automation to the reconciliation task enabling you to check line-by-line all consignments against invoices in a matter of minutes.
An expert in freight is still required to review the results; establish some of the reasons for error, (those not established by, for example, the FMS system); work out the credits to be lodged with the carrier; establish how and why to improve other errors, such as: fuel levy increase, changes in cubic conversion, no quoted rates established for a delivery location; and so on.
When you outsource this work to an expert of FMS systems, carrier systems, and processes, you speed up the process further than with an internal resource. Outsourcing ensures you also obtain the benefits of an organisation that has scalability and redundancy processes in place; further lowering costs and the risk of the CIR system being delayed or even halted unexpectedly i.e. sick leave or an employee quitting. If you choose to use your own staff, you must also consider the costs of re-training staff when that member leaves or is promoted to another role or department. Finding a resource with the skills and experience to re-train on on the CIR process is difficult and prohibitive.
Further, you don’t have to worry about the opportunity costs of a DIY process. What are the soft costs to this task? What core task could that staff member be deployed to, that would have a higher impact for the business, using their core strengths and expertise?
Working out the ROI can be tricky upfront. You don’t know what you are going to uncover. However, as per our case study examples, having a regular system in place for checking freight costs will save you from those unexpected changes in pricing that can cost your company a considerable amount if left unchecked. Further savings and improvements upon your freight business processes can be uncovered when using our Business Intelligence services as well; these two services go ‘hand in hand.’
If you want to learn more about how to implement a Carrier Invoice Reconciliation solution for your business, please contact us and we will be happy to advise you further.