4 Common Freight Invoice Errors that Cause Overpayments
Did you know that, on average, 1 out of every 4 freight bills contains an error?
And when you’re processing hundreds of transactions per day, this can add up to a major impact on your bottom line. That’s why so many companies rely on freight audits to verify compliance, minimize losses, and maximize revenue.
All of that said, when it comes to mitigating the losses associated with freight billing and invoice errors, the best offense is a good defense.
Freight Billing Error No. 1
Shipper Inaccuracy or Errors on the Bill of Lading
The detailed list of shipment information that the carrier gives to the consignee is called a “bill of lading.” A bill of lading is one of the most important documents in the shipping industry, as it provides the driver and the carrier with all of the details needed to process the shipment properly. It acts as a sort of receipt.
If someone makes a mistake when inputting carrier, contact information, and/or weight information on your bill of lading, the result is that the carrier obtains inaccurate shipment information… and that can lead to a number of consequences:
Delayed delivery
Loss of the right to limit liability
Loss of P&I cover
Loss of the right of indemnity from the charterer
Overcharging on the freight bill - For instance, if shipment inaccuracy is due to incorrect labeling of contact + address, then the outcome will likely be a delay in delivery. On top of that, there will be unforeseen charges added to your invoice.
Undercharging on the freight bill - Now, if the wrong weight of a shipment is estimated on the shipper’s end, sending inaccurate information to the carrier, then they could show a loss in overall shipping fees. Let’s say the weight estimated on the shipper’s end shows that it was much less on the bill of lading than it actually is. The payment sent over by the customer would then be less than what they should have been charged. Because it was a fault on the shipper’s end, they now owe the carrier the remaining amount, resulting in overlooked costs.
Increase in rates on the freight bill - This commonly happens because of merchandise classification errors. Overseen by the National Motor Freight Traffic Association (NMFTA), there are 18 freight classification categories that identify the density, size, stow-ability, and value of the merchandise being shipped. When shipping freight of any kind, merchandise classification needs to be thoroughly researched and understood to avoid an increase in rates.
Learn how to strengthen your AP processes and eliminate recurring errors in our recent blog, “Prevent AP Errors at the Source: How to Action Root Cause Analysis” +
Freight Billing Error No. 2
Detention Errors
A detention error is a penalty fee charged to the shipper’s account for delaying the carrier’s pick-up schedule past the allotted time frame agreed upon by both parties. Within detention errors, there are two types: per diem and driver detention.
Per diem fees are incurred by the shipper when they hold onto equipment beyond the agreed-upon time period, therefore impeding carriers from using their own equipment. Every day that the equipment is not returned, a fixed rate (per container, per day) will be charged to the freight bill.
Driver detention fees are charged to the shipper and receiver when driver wait time, at the origin and/or destination, exceeds the free time for loading and unloading the truck. Causing delays for drivers cuts into their legally enforced 11-hour capped drive increases crash risks by 6.2 percent (U.S. DOT), and can drastically damage a driver’s professional reputation. Charged at an hourly rate, this fee is to compensate inconvenienced drivers.
It’s important to thoroughly look at your invoices to make sure the agreed-upon detention error rate is followed through accurately to prevent overcharged or undercharged fees.
Freight Billing Error No. 3
Accessorial Charges
Accessorial charges are fees charged to the shipper when the carrier performs freight services that are beyond the normal pickup and delivery routes. These include, but are not limited to:
Liftgate services, when the transportation vehicle needs to be a few feet off the ground to easily move packages (common in areas that don’t have docks)
Inside delivery, when a shipment is delivered directly to the residential’s or facility’s door.
Re-consignment or limited access delivery outside the planned route.
Additional commercial / residential pickup or delivery outside the planned route.
The best way to avoid these types of charges on your freight bill is to have clear communication between the shipper and the receiver. Ask for information on the type of location, what the destination looks like, what it has/doesn’t have, and which truck would be the most efficient to complete the shipment. This will help eliminate any difficulties the carrier might encounter throughout the transportation process, while hopefully mitigating the risk of racking up unexpected fees for all parties.
Discover how conducting a contract compliance audit program helps companies ensure contract terms match the payments they’ve made in our guide, “The Ultimate Guide to a Contract Compliance Audit.”
Freight Billing Error No. 4
Overlooking Discounted Rates
Your contract and freight team work hard to negotiate favorable terms for your business, so it’s important to ensure that those terms stick. Overlooking discounted rates between you and your third-party vendors can be prevented by keeping your agreements on file when auditing your invoice and connecting all the dots across your contracts and bills. Vigilance is key here - It’s best to notice an accounting error early on so you can quickly fix the miscommunication between your third parties and submit a re-bill to correct the charges.
Learn what components make a strong procurement contract in our blog, "5 Tips for Better Contracts: How to Improve Contract Negotiation in the Procurement Process" +
How Outsourced Freight Audits Can Help
Auditing has a 6-8% average recovery of errors. Investing in tighter, more efficient freight operations - whether that benefit is seen through proactively catching data errors, or through the elimination of non-essential costs on invoices/reduction of labor required bodes well for any complex enterprise’s bottom line.