How to Prevent or Minimize Costs in Freight

Buyers' Training
March 15, 2013 — 1,077 views  
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Handling freight bills is a challenge for a company’s accounts payable department for various reasons. Carriers provide aggregate freight bills, and companies find it difficult to break down the bill into individual shipments or purchase orders, which result in an increase in the hidden costs in freight bills. In addition, because many accounts payable departments employ a manual process of validating the freight bill against the bill of lading and other supporting documentation, there could be delays in the processing of the bill, leading to penalty or late fees. In addition, manual maintenance of bills makes auditing or adjustments in rates challenging and difficult due to last minute changes.

Hidden Costs Associated with the Presentation of Bill

Though invoices should be billed per shipment, it is a common practice for freight forwarders to present an aggregate bill. Even a single shipment sometimes contains multiple orders. To obtain true cost, an invoice should be validated at the level of a shipment. It is hard to authenticate and approve an aggregated invoice that cannot be broken down into individual components. An aggregated invoice that cannot be drilled-down prevents you from spotting the specific amount spent on freight alone, and the individual charges cannot be assigned to different cost centers. This leads to an increase in hidden costs, which could have otherwise been identified and distributed.

Delays in Settling Invoices

If the company’s own accounts payable department handles settling of freight bills, it is commonly seen that their processing happens as and when the bills are received by the accounts department. The process of settling a freight bill involves matching the freight bill manually with the bill of lading and with any other enclosed documents. Alternatively, the company may automatically approve the freight bill without any auditing process, resulting in increase in hidden costs in freight. If any delays in payment occur because of delay in validating the bill due to missing receipts, or supporting documentation, the carrier can penalize the company with a late fee. Delays like these can lead the carrier to increase future freight rates up to 3%.

Inadequate Auditing Capabilities and Hidden Charges

A company may opt for the services of many different carriers, with a different rate contract set-up with each carrier. An accounts payable department of a company should be capable of tracking and verifying the freight bills with different carriers based on the agreed rates. However, most accounts departments are not equipped with the technology to handle this auditing process. The company could pay up to an additional 5% of the amount billed if such rate errors are not detected. In addition, a number of changes like re-routing, delays in shipment, re-classification, and penalties can lead to an inaccurate bill. The carrier bill needs to be adjusted with these changes. If changes like these are not tracked, it may lead to losses because of inaccurate billing and an inefficient auditing process.

How to Avoid Such Hidden Charges

Outsourcing freight payment to a specialized company having freight handling experience, and offering automation can help to efficiently process freight bills and eliminate hidden costs. It is seen that freight-processing costs can be reduced to between 30% and 40 % by using an outsourcing partner. Outsourcing also helps in saving costs that arise from delays in invoice settling due to manual document-matching procedure and management. This is because documents can be electronically linked, validated, and stored for auditing and payment processing. Electronic handling of the process of freight payment makes it easy to track each associated bill and payment. Automated auditing ensures correct billing after considering all adjustments. Bills, adjustments, and any supporting documents can be viewed online instantly. By utilizing reporting functions offered by automation, businesses can track the trends in transportation, and work out how to reduce freight costs.

Buyers' Training