From the detailed rate tables and opaque service agreements to all the different delivery options, small parcel shipping is complex. Add to that annual general rate increases, peak season surcharges, and “because-we-want-to” rate and surcharge changes, and calculating an accurate cost for a shipment becomes frustratingly hard.
It’s so hard that the carriers themselves often invoice wrong — up to four percent of the time (in their favor, not surprisingly). This makes auditing FedEx and UPS invoices a necessary part of every shipper’s invoice approval and payment process.
The need to audit carrier bills is already clear to some companies, but the approach each takes can be very different. Even just understanding what exactly can be audited has changed significantly in the past 12 months (more on that to come). Regardless, shippers need to be proactive in identifying all of the opportunities that exist to recover the money carriers owe them due to the carriers’ invoicing mistakes.
Why Do Invoicing Errors Happen, and Who’s at Fault?
In a perfect world, the carriers could be trusted to invoice for shipments accurately. They’d also be reliable enough to credit customers fairly for refunds they are owed for carrier mistakes. But that’s not the reality.
This means that parcel invoice audit is a requirement to confirm that the carrier pricing matches what is spelled out in your agreement. An audit is the only way for a shipper to prevent being overcharged for carriers’ errors in calculation or misapplied surcharges. It’s worth noting that many of the refunds shippers can claim are the result of “honest” errors, so some are understandable — but most are not. And since shipping, by its nature, is often subject to “Murphy’s Law: Whatever can go wrong, will go wrong,” actual costs often end up being different than what is estimated by a shipper when the shipment initially handed off to the carrier.
Unfortunately, it’s shippers who bear the burden of catching the mistakes no matter the cause. But since it’s so hard to audit shipping invoices, a lot of companies either overlook the errors or see the problem as a basic cost of doing business.
How to Keep the Carriers in Check
Here are different approaches shippers can take, some of which are more effective than others. The carriers make it difficult to find the needles sprinkled throughout the haystack, and there is even a lot of misunderstanding about which parts of invoices can be audited and what’s actually refundable.
The significant change to what can be audited alluded to earlier has to do with the carriers’ service performance guarantees. At the outset of the pandemic, both UPS and FedEx suspended their guarantees, which meant shippers could no longer get refunds for shipments that were delivered late. This guarantee was a big part of many companies’ refunds in the past, and it is also the reason many use UPS and FedEx and not the USPS. Thankfully, UPS and FedEx took the small step of reinstating some of their service guarantees this past April without a lot of fanfare. This is a good illustration of how shippers need to stay on their toes when it comes to monitoring the carriers’ billing and pricing.
How to Maximize Refunds
Shippers have a few options to get the money they are owed back from the carriers. Their results vary, however. Some companies go the route of trying to audit invoices themselves, but to do it correctly and thoroughly requires specialized experience and technology. These companies are almost certainly leaving money on the table. Others engage with an auditing company that claims to be the best because they audit for the most data points. But maximizing the amount of money your company recovers happens by focusing on what matters and with the right approach. The number of items that can be audited is not a secret, so claiming to audit more things doesn’t significantly change the results.
It is the application of technology to find the opportunities that an audit truly beneficial. With service guarantees partially back on the table again, here are some of the other more impactful errors that occur regularly and should be given most attention:
- Incorrect delivery address (It’s common for correct addresses to incur this fee in error, but it takes effort to identify when it occurs.)
- Dimensional audit (Rules for how dimensional sizes are calculated change periodically and the calculations are complex.)
- Duplicate shipments (Shipments can be invoiced twice and unsuspecting shippers will pay both invoices.)
- Invalid residential surcharges (Drivers can, at their discretion, add this surcharge and often do so incorrectly.)
- Invalid Saturday delivery and pick-up (With weekend deliveries becoming more common, this charge is being misapplied more frequently.)
- Rate audit (This identifies a misapplied discount and tends to happen with groups of packages.)
By the way, although it’s not an error or refund possibility, there is another new invoice-related cost to be aware of. FedEx is now applying a late fee penalty of six percent for past due invoices. This is one more reason to be diligent and organized with your audit and payment processes.
It should also be stressed that not auditing invoices comes with big opportunity costs beyond just the refund checks and hard-dollar savings. Small parcel shipping creates a lot of valuable data, and there is a huge opportunity to leverage that information to not only improve your shipping operation, but also many other parts of your business.
Auditing invoices creates data that can be used to learn a lot of things about your business and help with strategic decision making, such as which distribution facilities are performing best, which product lines are most profitable, and ways to optimize inbound shipping costs from suppliers, to name just a few.
Within the supply chain function, parcel data can provide insights into carrier performance and your overall network efficiency, down to the package level. Armed with data, logistics managers can analyze their operation to make better decisions in both the short and long term.
Auditing Is Zero Risk and All Reward
Be assured that auditing invoices will not negatively impact your carrier relationships. The money recovered is money the carriers already know they owe you. It’s no accident that UPS and FedEx make it very hard for you to know when you’re owed a refund and even harder for you to get it.
For most shippers, auditing invoices will recover a significant amount of money and provide you with a treasure trove of valuable data that, if utilized well, will give you the data-backed knowledge and insight to make your shipping operation the best it can be.
Jamie Vogel is EVP of Sales & Marketing at Transportation Impact, a technology-first company providing cost-savings and service performance improvement solutions for shippers. Motivated by her passion for continuous learning and building relationships, she is also the host of the Let’s Talk Ship webinar series where she engages in thoughtful discussions with industry leaders on all things logistics. Jamie can be reached at email@example.com.
This article originally appeared in the May/June, 2021 issue of PARCEL.