How to Perform a Freight Audit: Tips and Best Practices

Last Updated November 19, 2024

One of the most important parts of the freight billing process is the freight audit. During the freight audit, the original freight bill and invoice are compared with the terms and services a carrier and shipper agreed to, as well as the state of the delivered goods or products. Freight bill auditing is a key process for both shippers and carriers to ensure that invoices are paid properly for rendered services.

Auditing freight bills requires intensive attention to detail, but giving the audit the attention it deserves will go a long way in helping you and your clients stay in control of their finances and maintain a positive working relationship.

What Is the Role of an Audit in the Freight Billing Process?

The role of a freight bill audit is to ensure the accuracy of the final invoice. The invoice issued by the carrier is compared to the terms and services that were agreed upon as part of the initial freight bill. This doesn’t just include the line items included in the original documentation. It also accounts for whether products were delivered as expected. Both carriers and shippers can perform their own internal audits to ensure the accuracy of accounts receivable and accounts payable.

Benefits of a Freight Audit

Freight bill auditing is well worth it for both carriers and shippers. Here’s why:

1. Ensures Accuracy and Compliance

Freight invoice auditing ensures that invoice payments are accurate—that shippers only pay the money they owe and that carriers are paid the proper amount. This can help prevent payment disputes and keep all parties involved on the same page. Using documentation to track any concerns or discrepancies also serves as a valuable point of reference that streamlines dispute resolution.

2. Identifies Shipping Trends

Conducting a freight audit can also help back-office teams identify trends in current shipping practices. This can help shippers refine their shipping practices and forecast future expenses associated with transportation. Carriers can also use freight auditing to forecast future workloads so they can manage their cash flow appropriately. Using invoice data, carriers and shippers can uncover strategies to reduce costs associated with the freight shipping process.

3. Improves Carrier/Shipper Relationships

Freight auditing can help improve relationships between carriers and shippers by proactively addressing any issues that might exist between freight bills and invoices. For example, carriers can catch errors or discrepancies before sending over an invoice to streamline the payment process. Shippers and carriers who view auditing as a collaborative tool that ensures clerical accuracy for both parties can strengthen their relationship and build greater trust.

How to Perform a Freight Audit

Performing a freight bill audit may seem overwhelming at first glance, but the process itself is relatively straightforward. With careful attention to detail, performing an audit can ensure invoice accuracy for accounting purposes.

1. Gather All Relevant Documentation

All documents related to the freight bill and the final invoice should be gathered so that the data contained within these documents can be compared. In addition to the freight bill and invoice, it’s usually helpful to examine the bill of lading to confirm that the actual shipment aligns with the information contained in the freight bill and invoice.

2. Practice Invoice Verification

Invoice verification is an essential part of the freight bill audit, in which the shipper confirms that the products it received match the details included on the invoice from the carrier. The charges listed on the invoice will typically be compared to the purchase order and/or goods receipts and bill of lading.

3. Don’t Forget to Perform an Accessorial Charges Audit

Accessorial charges that apply to a particular shipment should also be included in both the original freight bill and the final invoice. Shippers and consignees should audit accessorial charges such as detention and layover fees, stop charges, and so on. In some cases, additional accessorial charges may be required, such as a reconsignment fee for circumstances when the shipment’s destination was changed after the freight was already in transit.

4. Ensure You’re Abiding by Trade Compliance Regulations

The transportation industry is subject to a wide range of regulatory requirements. For example, transportation services are typically subjected to a variety of tax regulations, including state taxes, federal taxes, fuel surcharges, and value-added taxes. A freight bill audit can help ensure that information contained within the invoice is compliant with these and other relevant regulations.

5. Address Mismatching Information and Resolve Disputes if Necessary

If any discrepancies are discovered before a carrier sends an invoice to the client, the accounts receivable team should seek to correct and resolve them before sending the invoice. If the client discovers mismatching information when conducting their own freight billing audit, the two sides will need to communicate to clarify and resolve any disputes. Whether the result of a clerical error or changes that occurred with the shipment, both sides should strive for open and transparent communication to ensure a timely resolution.

6. Process Payment

After the freight bill audit is complete and any disputes have been resolved, the client will issue payment to the carrier using the agreed-upon payment method.

Common Discrepancies to Look for During an Audit

Freight audits should examine all relevant cost elements to ensure their accuracy. Back office staff should verify the following data points as part of their audits:

• Freight rate
• Freight classification
• Transportation cost
• Shipping weight
• Mileage
• Accessorial charges
• Insurance
• Delivery guarantees/requirements
• Discounts, if applicable

In addition, audits should confirm that invoice numbers, bill of lading numbers, and other documentation match. Freight audits should confirm that an invoice is not a duplicate, as well as note whether the invoice is an updated or corrected version of a previously received invoice.

Freight Audit Best Practices

While freight auditing can seem tedious and time-consuming, the process can be made much simpler when you follow freight audit and payment best practices.

Examine Products or Goods to Ensure They Meet Expectations

One of the most common (and costly) issues that could occur is if the delivered products don’t meet expectations. This could be the result of damage that occurred during transit, the delivery not matching what was listed on the original freight bill, or other issues. If goods do not meet expectations, the shipper must contact the carrier as soon as possible to determine the next steps.

It’s important to keep in mind, however, that missing or damaged goods may not necessarily be the fault of the carrier—careful documentation is essential to determine when the issue took place, and what should be done to remedy the situation.

Standardize Processes Wherever Possible

Every business should have standardized processes for invoice verification and invoice reconciliation. A standardized process will provide clear guidelines for all internal staff to follow to ensure that every freight invoice is properly audited and that all financial records are accurate.

Record and Monitor Performance Through KPIs

Freight auditing is most effective when it’s also used to record and monitor a variety of performance metrics. For carriers, freight bill auditing can be used to track the accuracy of the invoices you send to their clients, as well as how this affects other metrics like the average time to receive payment for an invoice.

The carrier can also use the audit to measure their own performance in areas such as delivery time, order accuracy, and transportation costs. Clients can similarly use these KPIs to compare the performance of different shipping partners, which can then be used for future decision-making.

Leverage Technology to Easily Digitize All Data

Manually tracking and processing all the paperwork associated with a freight audit can be time-consuming. And it can be surprisingly easy to lose track of physical documents. Businesses should have a plan to digitize all important documents and keep them organized in relevant digital folders. This not only makes data more accessible but also ensures that important information isn’t lost or accidentally discarded when a dispute occurs.

Invest in Freight Audit Software or Other Freight Audit Services

Investing in quality accounting software is crucial for businesses that don’t have the resources to handle these tasks on their own. Smaller businesses, in particular, often don’t have the bandwidth to perform manual freight auditing. Software can help automate the auditing process, quickly scanning the content of invoices, freight bills, and other documents to identify any discrepancies that may need to be addressed.

In-Summary: Performing a Freight Audit

Trucking companies concerned about collecting unpaid invoices should always be mindful of the role that freight auditing plays in processing and paying out invoices. Trucking companies that adopt their own internal freight auditing processes to check for any discrepancies or errors in their invoices can ensure faster payment and stronger client relationships.

At the same time, carriers must be respectful of their clients’ own freight auditing processes and be quick to respond when a dispute arises.

By using digital software to help automate the auditing process and maintain your records, you can ensure greater accuracy and compliance, improve your own KPIs, and develop stronger relationships with your clients.