THE DIFFERENCES BETWEEN FREIGHT PAYMENT & PARCEL AUDIT COMP
THERE ARE DIFFERENT KINDS OF FREIGHT AUDITS
Most audits are done when the bill arrives. This makes sense, as the effort is review the bill for billing errors, such as late delivery, check the negotiated rates against what is actually on the bill, check for duplicate billings, etc, etc. Then the discrepancies are highlighted to the carrier, and the carrier is short paid on the corrected bill. This is the type of audit done by most freight payment companies.
FREIGHT PAYMENT COMPANIES
The modern model of a Freight payment company has been with us since the 1920's. The freight payment industry was actually formed by a series of Banks when the transportation marketplace was heavily regulated. Motor carrier bills had to be paid within 7 days and rail bills needed to be paid within 5 days. To meet this requirement the banking community, shippers, and carriers formed what was known as The National Association of Freight Payment Banks.
At that time the emphasis was on settlement of carrier bills within the regulated parameters for credit extension. If settlement was not made, the carrier was required by law to place the shipper on a cash basis. This was not an idle threat and large Fortune 500 companies would often have the freight held because bills were not paid on time.
With Deregulation of the transportation industry in 1980 this began to change. Credit terms could be negotiated between shippers and carriers for more reasonable periods of time. The process has become much more robust with bills being audited before they are paid (pre-audit). This includes: a verification of freight rates for compliance with the customers contracts, checks for previous payment, checks for shipper's liability and other edits and validations to insure the bills meet the shipper's requirements for payment.
A freight payment service usually consists of one or more levels of combined services. They may include freight audit, information reporting for logistics, and work with a combination of both Electronic Data Interchange, and paper freight bills.
The real thrust of the business today is actionable information that shipper receive via the web or create from their vendor's web site on an ad hoc basis. Sophisticated reporting tools allow Freight Payment Vendors and their customers to easily perform calculations, create graphics, generate pivot tables, and e-mail reports on a scheduled basis.
Many freight payment services now employ web services in their overall strategy to help their customers streamline the way they exchange information, and obtain information reporting.
Most, if not all, freight payment companies require that you issue them a bank wire on their schedule for your company's freight payment needs as reported by the freight payment company. This schedule is referred to as a batch. The freight payment service will then turn around and pay your company's freight bills to the carriers.
Many freight payment companies will audit parcel shipping as well as TLT and TL, but will often not do the audits for the lost and damages shipments. In fact this is true in the great majority of the freight payment firms, (85%) because their business model is based on the old freight payment model which usually pays the bill before allowing enough time to pass to do an audit for lost and damaged shipments. (You need to wait for at least 2 weeks after shipment to allow time for the package to be delivered)
A freight payment service company will:
- Reduce freight spend.
- Provide better information management.
- Save time, plus cut costs on personnel.
PARCEL AUDIT COMPANIES
In the 1970s everyone heard the promotions guaranteeing on-time delivery of parcels or your money back.
Parcel audit companies started to come into being a few years after the origin of the guaranteed delivery times by parcel carriers. The burden of proof of late delivery was placed on the shipper, along with the responsibility to file the claim for the late delivery. Looking through thousands of invoices weekly to find these became a specialized process and a small group of companies formed at that time, somewhere in the early 1990s to accommodate this need.
In analyzing the invoices, other areas of claims grew from this, such as ensuring all rates conformed with the contracts, and refunds were also gotten for parcels put onto the manifest, but never shipped. As technology permeated all levels of shipping more and more, increasing complexity also came into being on shipping bills.
The Parcel audit process is commonly aimed at finding incorrectly billed charges on an invoice and getting refunds back to the shipper, or crediting them directly off their bill. They also specialize in finding and obtaining additional refunds in two key areas 1) late shipments and 2) lost and damaged shipments.
Today, parcel carriers like UPS, FedEx, and DHL often have large, long, and complicated invoices. Any customer shipping a high volume of parcel boxes via one of these carriers will surely see invoices hundreds of pages long. The invoices are chocked full of data, which is mostly of great importance. The invoices show a high amount of visibility to how a package was carried and delivered. This finite data is collected by UPS and FedEx for tracking purposes, but also to automate the process of charging the appropriate amount to their clients.
Invoicing process: errors and overbills
The invoicing process is so automated that mistakes happen quite often. Insiders to UPS and FedEx claim that little focus is spent to prevent billing for inappropriate charges. Duplicate charges, incorrect discount amounts, and phantom accessorial charges happen more often than one would care to imagine. Invoicing errors are a common phenomenon, and most large carriers provide teams and electronic forms to quickly contest improper charges on one's invoice. With the proper data to dispute the charges, they are often credited off one's bill in a matter of hours.
Overbilling - or Service Failures - is considered a larger problem than invoicing errors. A Service Failure occurs when a package with a time sensitive guarantee is delivered late. In the case refund is due to the client. However simple it sounds, most carriers like UPS and FedEx place the responsibility on the customer to check the timeliness of every delivered package. Once the service failure is found, the carrier typically credits the amount due in a quick fashion.
Published savings rates
Many studies often claim that up to 5% of a client's UPS and/or FedEx charges are due to errors or over billed items.
Most important of all are the charges for lost and damaged parcels. Because the carrier is liable to pay back to the shipper not only for cost of the shipment, but also for the value of the contents in the lost shipment (up to $100.) this one category alone can result in 3-5% return of the entire parcel shipping spend when audited and handled.
THE DIFFERENCES
The differences can boil down to a lot of issues, but the main one is losing 3-5% of potential refunds on lost and damaged shipping with UPS if you are not using a parcel audit company.
The best way to find out if it is there or not, is to get a trial audit done by a reliable parcel audit company.