How to run a parcel invoice audit and get high-quality data

In a soft market, holding on to your capital is even harder than usual. The market leans toward supply instead of demand. Interest rates skyrocket and steady inflation means it’s a challenge to keep money in your pocket.

These kinds of industry ups and downs aren’t uncommon – we see market shifts every three years. Therefore, parcel shippers have to be ready for such changes to avoid negatively impacting their network and margins. You simply can’t afford to risk profit loss with manual processes or rigid technology.

So, how do you ensure efficient processes that provide accurate data? Automated parcel invoice auditing.

Accurate parcel invoice audits highlight where mistakes cost you. So you can resolve those errors to keep your network profitable.

Keep reading to learn how automatic parcel invoice auditing software helps you hang on to working capital in a turbulent industry.

What is parcel invoice auditing?

Parcel invoice auditing compares invoices and contracts to verify the expected shipping costs match the invoiced rates.

If you spot a discrepancy, such as duplicate charges or an unexpected accessorial, you know where to dig deeper to verify it.

There are two core methods of parcel invoice auditing: manual and automatic. We’ll discuss what it looks like to run a manual parcel audit, then take a look at how parcel auditing software works.

How do you run a manual parcel audit?

The average manual audit takes days to finish and is limited to a handful of data points. With only a limited dataset to go off of, you’re looking at an incomplete picture of your network. This lack of comprehensive data hurts audit results and increases the chances of invoice mistakes slipping through. It also means missed cost-savings insights.

Shippers receive the parcel data electronically from carriers, who each structure it differently. As the data recipient, you’re responsible for making the data readable and usable. After all, to ensure accuracy during an invoice audit, it’s crucial to work with clean data.

The trouble is, you likely have hundreds of invoices that need auditing. Unfortunately, the manual process of data cleansing is notoriously time-consuming and error-prone. Never mind if you use more than one carrier, you are repeating the exact same steps for each carrier you use.

Here’s what happens during a parcel invoice audit:

• Shippers gather all the necessary information. You need to get the shipping invoice and shipment details. The Big 4 – USPS, UPS, FedEx, DHL – store data in an Electronic Data Interchange (EDI) feed that shippers either pull directly or download from a carrier portal. Smaller regional carriers likely use PDFs or spreadsheets.
• Conduct an account code audit. Verify that the invoices are billed to your correct account codes. Many companies will have several underlying billing codes tied to a master account. These billing codes are critical to allocate cost to the correct budget as well as confirm your raw material suppliers aren’t abusing your collect freight when booking on your contracts.
• Conduct a rate audit. Verify that your invoice has the correct rates. Here, you audit the invoice EDI feed against the rate contract. Shippers check their internal list of tracking numbers against the carrier invoice to ensure it matches.
• Conduct a service audit. Make sure that your invoice has the correct services and associated discounts.
• Run an accessorial audit. Ensure that your invoice has the correct accessorials and associated discounts.
• Conduct a service-level audit. Analyze the selected service level (next day, ground, etc.) versus the published transit days. How often are you paying for two-day delivery when the ground transit will meet this delivery window?

In a perfect world, a carrier invoice would always be accurate and a shipper wouldn’t need parcel audit services.

But, why is this a rarity? In short, it’s complex.

Let’s say you’re looking at $1 million in parcel spending with the average cost per package of $10. You have 100,000 shipments annually.

Even if it takes only one minute to audit each invoice manually, that adds up to around 70 full days. Multiply it by 10 million, and it becomes impossible to manage. Because of this, shippers end up spot-checking 10 to 15 shipments per invoice.

Usually, a spot check doesn’t include drilling down to each line-item and breaking out costs so shipper’s can track their product or unit-level profitability. Without this in-depth analysis, you run the risk of not properly pricing your products.

Manual audits are tedious. It’s time that most shippers don’t have, so you’re forced to trim down the process. As a result, costly mistakes slip through.

How do you run a parcel audit using software?

Parcel audit software covers all the same steps as a manual audit, except it executes automatically within hours of receiving an invoice.

Why can software move faster? It comes down to data management and processing.

Parcel auditing software aggregates and standardizes data across carriers, contracts, lanes, and accessorials. Instead of following a paper trail of data stored in different formats, data is centralized in one place. This cuts invoice auditing time down to mere hours.

For example, instead of needing to know the 4 different codes for a Next Day Air service-level off the top of your head, off the top of your head, you can trust that the software standardized and mapped all iterations into one.

Intelligent software leans on logistics-AI to ensure accuracy while auditing and collecting data. It’s contextualized to your network – a depth of knowledge an outsourced auditor simply lacks.

During this automated process, when an invoice is approved it moves on to payment. If it has errors, it’s flagged. Solutions like Loop will point to precisely the size of the issue and why it occurred. You can then follow up on these specific charges with data to back your dispute. This expedites exception management and streamlines resolution, which saves you money.

Manual vs. automatic software invoice auditing

At a high level, manual and automatic parcel invoice auditing cover the same steps. The two processes sharply diverge when it comes to accuracy and efficiency.

Here’s a breakdown of their pros and cons.

Manual parcel auditing

Pros:

• It presents an opportunity for human auditors to communicate with shippers and carriers.
• There’s potential for increased understanding of complex audits.
• You can outsource to a third-party parcel audit provider if you have a small team.

Cons:

• There’s an increased risk of human error from missing small details or making mistakes.
• It’s a time-consuming process, taking days to complete a single audit.
• It requires a lot of manpower that most teams don’t have.
• It has limited scalability as your network grows and needs become more complicated.
• When outsourcing audits, you don’t own or control your data. Often you pay on a per-report basis, which gets expensive.
• It doesn’t centralize your data, so you can’t find cost-saving opportunities.
• It doesn’t fix the structural issues of carrier compliance, so invoice errors continue to arise.

Automatic software invoice auditing

Pros:

• It cuts the invoice auditing time down to just a few hours.
• Software can standardize data to resolve duplicates.
• There’s an increase of overall parcel data accuracy by aggregating all data.
• It automatically runs audits to find mistakes quickly and save even more time.
• Software has the ability to efficiently handle a large volume of invoices.
• It surfaces the root cause of the issue to streamline resolution.
• It fixes the structural issue of carrier compliance to reduce the number of invoices that have errors.

Cons:

• It requires an initial investment to purchase and set up the software.
• It still requires a human with specific network expertise. They will validate a small number of exceptions that can’t be managed by software.

If you’ve established a flexible and scalable audit process, you’ve unlocked high-quality data. This data is your ticket to finding opportunities for cost savings and handling the obstacles a soft freight market sends your way.

4 ways to use high-quality parcel invoice audit data

1. Reduce the costs of accessorials

When unchecked, accessorial fees eat into your profits. Even the high frequency but low cost accessorials will dramatically increase burn in the long run.

With a solid audit process that provides high-quality invoice data, you can easily spot how repeat accessorials impact your budget. Sometimes, those accessorials are inaccurate, which could be a sign it’s time to renegotiate contract terms or reoptimize your shipping route. Nevertheless, the charges give you key insight into what’s happening behind the scenes during parcel transportation.

Here are some factors to consider:

• Re-weigh accessorials. Does one of your facilities have a broken scale? It could be causing expensive parcel reweight fees to land on your invoices.
• Dimensional weight charges. Do you need to reexamine your packaging? If you see a dimensional weight accessorial, perhaps you’re missing a step when estimating costs.
• Residential fees. Do you need to negotiate for better discounts on your residential deliveries? Are you working with a suitable carrier for the job?
• Address correction. Do you need to investigate where back-of-house mistakes could lead to address correction fees?

2. Stop overpaying on invoices

About 20% of invoices have errors, so chances are you’re overpaying. Intelligent software like Loop utilizes logistics-AI to flag these errors accurately. It will help you see if there are factors of your shipment you didn’t consider.

For example, you must accurately account for both the amount of space your parcels take up and their density. You also need to know whether you’re regularly being charged dim-out fees. Likewise, it will cost you more to ship bricks versus teddy bears.

With these insights, you’ll have peace of mind knowing you’re paying correct invoices and have more money on hand.

3. Optimize your transportation network

If you’ve audited and stored all your data, you should have a big-picture view of your transportation network. It lets you pull back the curtain on what’s happening at a carrier contract level and per invoice line item level. You can then use this information to optimize how you structure your transportation network.

For example, are you using the right carrier for each leg of your parcel’s journey? Is SurePost or SmartPost a more effective use of your resources for the final stretch?

Pro tip: Having a diversified carrier network mitigates risk when you least expect it. Build different relationships with a variety of carriers so you’re not wholly dependent on one. Doing so helps you build network resiliency if one carrier is suddenly unavailable or its rates increase. You’re establishing a network safety net for industry disruptions.

4. Negotiate more favorable carrier contracts

You need to look at your data to understand your precise needs. It allows you to go into contract discussions with carriers with the data to back up your knowledge.

Here are some factors to have top of mind:

• Shipment volume: Unlock more favorable discounts by giving one carrier more of your business.
• Service level: Verify that you’re using the right service level for the carrier and discount given your shipping lane.
• Carrier performance: Ensure your carrier adheres to its on-time deliveries. Document any service failures that impact your bottom line to use as negotiation leverage.

Usually, contract negotiations happen every year, or when the contract ends. However, it’s possible to add amendments to the agreement at any time. Carrier rates can increase by 3–4% year over year, so you must proactively manage these agreements.

With premium data on hand, you walk into every contract negotiation prepared.

Loop: Streamline parcel invoice audits and boost profitability

When done right, your parcel invoice audits will provide you with high-quality data. This data gives you complete visibility into your shipping expenses and transportation network.

Use it to guide how to make strategic decisions to unlock profits trapped in your supply chain and build resilience for soft market conditions.

Contact Loop today to improve spend visibility to control costs and power profit.