Shippers underestimate the potential of parcel audits. Parcel auditing is an excellent means of recapturing revenue by reducing parcel transportation costs for shippers around the globe. In fact, up to 10 percent of all freight invoices may contain inaccuracies, reports Chris Lewis of Inbound Logistics. To put this in perspective, a $10 million business may spend up to $1 million on parcel shipping. That amounts to $100,000 of shipping costs that may not accurately reflect the carriers’ actual charges. Therefore, isolating and correcting these errors and preventing their financial impacts could result in savings in transportation costs. Shippers looking for ways to improve profitability need to under parcel audits and their impact on total transportation costs.
Parcel Audits Identify Much More Than Just Billing Problems
The previous example focused solely the finances of billing problems, but parcel audits can identify other issues that adversely affect a business. As explained by Brad Hollister of ClearView Audit, this may include incorrect freight rates, failure of carriers to meet contractual obligations, incorrectly insuring packages, and diminishing the customer service experience. Higher costs to shippers inevitably result in inflation of product pricing. Thus, parcel audits keep product prices under control and enhance profitability at the same time.
Companies Shipping Parcel Often or at High Volumes Should Consider Auditing Invoices
It can be hard to know when companies should begin parcel auditing. On the surface, parcel auditing may seem like a great idea for all shippers, but what about shippers that only use parcel few and far between? In other words, if the invoices can be audited by a single person in under an hour, implementing an auditing process may not necessarily be cost-effective.
For example, an audit of 50 invoices identifies a 10-percent markup on freight rate for 10 percent of invoices. Even at high parcel rates, like $22 for each shipment, the savings do not justify auditing. In this case, 10-percent of $50 would be $2, but if the employee spends two hours auditing the invoices, as shown below:
[(The Number of Incorrect Invoices * (Actual Shipping Cost – Accurate Shipping Cost)] / Total Parcel Freight Spend
[5*($22-$20)] / $1000= 0.001 Percent or $1.
If the result is not more than the cost of the person auditing the invoices, multiplied by the number of hours spent auditing, it would cost more to audit than leaving invoices alone. This is part of the reason shippers forgo auditing, but those with high-volume of parcel shipments and who use parcel regularly could achieve savings more than auditing costs.
Even in this scenario, the process is still not over. Shippers must contact carriers, prove their case, and request a refund. The process is exceedingly complex, and if international shipments are involved, a simple refund could take weeks to process.
Why Do Shippers Avoid Parcel Audits?
Shippers forgo parcel audits for fear of retaliation by a carrier or little impact on freight spend. However, these misconceptions only serve to keep shippers away from audits. Reducing parcel transportation costs through parcel audits can be a source of recaptured revenue and even better overall customer satisfaction by holding carriers accountable for their actions, namely late delivery and damaged products.
How Do Parcel Audits Impact Freight Spend?
Considering the aforementioned example, manual in-house audits, as explained by PNG Logistics, are counterproductive and take more time to conduct than their savings. If a shipper automates the process, audits do not cost more than the software, which is why some companies opt to outsource parcel audits. Additional benefits of outsourced auditing service include:
- Fewer overcharges.
- Integrability with certain transportation management systems.
- Full-scale deployment of auditing includes documenting the issue and getting a refund from a carrier.
As a result, overall freight spend decreases, while costs of auditing do not adversely affect freight spend. Furthermore, outsourcing creates an active revenue stream. Outside companies take their payment for auditing services off the top of the refund. So, if the total savings is $1,000, a shipper paying 30 percent for auditing services would see a net refund of $700. Therefore, arguments against using outside parcel audits are void. As this example applies to entire enterprises, the savings could be as high as $70,000.
Begin Using Parcel Audits by Reducing Parcel Transportation Costs Now
Shippers talk about the low-hanging fruit in managing transportation spend, but no fruit hangs lower than that available through outsourced parcel audits. If your business ships parcel regularly and high volumes, grab the low-hanging fruit by outsourcing and implementing a parcel audit program now.