By Paul Homer UK and Ireland Sales Manager at Logistyx Technologies.
The sharp rise in ecommerce during the Covid-19 pandemic means retail and third-party logistics companies are shipping more parcels. One less obvious consequence of this increase in parcel shipping volume is an increased need for technology to automate carrier invoice auditing to help shippers keep parcel shipping costs in check.
Many shippers have partnered with additional carriers to scale their parcel shipping capacity to handle this sudden increase in online orders. They have also seen a dramatically increased workload for accounting staff who audit and reconcile carrier invoices to help monitor and control carrier spend.
For example, one retailer with which we have had contact already employs four staff full time to audit incoming carrier invoices to verify the invoices are correct. Frequently, they are not.
This company ships 10 million parcels a year - and while it currently works with two carrier partners, it uses 14 different services from those carriers. As well as charging different rates based on individual parcel dimension and weight, carrier charges vary according to delivery origin and destination as well as delivery timeframe.
There is added complexity involved in the invoice auditing and reconciliation function because carriers often have to apply surcharges. This might include, for example, out of area or remote charges (e.g. shipping to the Highlands and Islands in the UK), or additional repackaging charges if the original packaging was damaged or considered not fit for purpose. As a result, the charges listed on the carrier invoice might be different to what the shipper expected when the order was initially placed.
If you are shipping large parcel volumes, auditing carrier invoices is crucial. Mistakes can, and do, happen. For example, a carrier may bill for a service level promised, but not provided, or the rates a carrier charges for accessorial services might not accurately reflect the terms of the contract. These errors can add up quickly and have a surprising impact on the bottom line.
Manual auditing requires staff to review individual line items on carrier invoices, comparing them against the original orders and checking that additional charges tally with the charging structure agreed in the shipper’s contract. Any discrepancies can then be rectified by the carrier. As the number of partners increases and the volume of parcel shipments climbs, many shippers are finding the manual management of invoice auditing is taking a significant amount of staff time. Manual reconciliation also carries a greater risk of human error.
Unsurprisingly, automation is becoming increasingly popular and some advanced cloud multi-carrier shipping software now offers automated carrier invoice auditing functionality. All transportation data, from carrier contracts, to delivery events, to carrier invoices, is captured and normalised in the multi-carrier shipping system, which then flags any discrepancies between expected costs and carrier invoices. This gives shippers and logistics service providers greater insight and control over their transportation spend.
Based on Logistyx’s experience, around 1 to 2% of all parcel invoices are rated incorrectly, while another 2 to 3% are inaccurate for other reasons. On top of this, somewhere in the range of 2 to 7% of all shipments are late or incorrectly delivered – and generally, carrier contracts will stipulate that customers can recoup up to 100% of the cost for late deliveries. So overall, whether there is an error on the invoice as presented or it needs to be adjusted due to shipment errors, up to 10-12% of all invoices are likely to be incorrect.
In addition to reconciling discrepancies and identifying billing mistakes, carrier invoice auditing provides shippers and logistics service providers with “soft cost” savings, through the elimination of time-consuming tasks including receiving and opening mail, sorting invoices, looking up rates, auditing and approving invoices, paying carriers, and even assigning a general ledger code. This allows accounting teams to redirect their resources to more critical tasks.
In the example of the company above, they might only need one person to check the invoice discrepancies highlighted by automated carrier invoice auditing technology, allowing them to redeploy three of the four-person team currently working on manual invoice reconciliation.
On top of this, by providing an overall comparison of carrier invoices to carrier agreements, carrier invoice auditing helps shippers and logistics providers ensure their carrier procurement is aligned with strategy and allows them to verify they’re receiving the delivery outcomes for which they are paying.
In the past, some organisations have failed to apply the same level of scrutiny to their parcel shipping costs as they do to tracking and auditing freight costs. Partly, this may have been because parcel shipments have historically comprised a small percentage of their overall distribution operations. But ecommerce growth over the last few years has meant many shippers and logistics service providers are finding parcel delivery is now an integral part of their transportation mix, and this trend is being intensified by the pandemic.
As ecommerce becomes more important, so does the need for technology such as carrier invoice auditing, which can help keep parcel shipping costs under control in a world of ever tighter margins.