If you have shipped before, then you know how important it is to understand how freight billing works. Freight billing is an unavoidable part of the process for every shipper. It might sound like a simple process, but it can get complicated. Without the knowledge of best practices for freight billing, it can be easy for small businesses to get caught up in freight billing mayhem. Knowing how freight billing works helps avoid costly shipping mistakes and gives you more time to spend running your business.
How the Freight Billing Process Works
Let’s start with the terminology. Then we’ll talk about the most important steps in the freight billing process. When a shipment’s rate and transit is chosen, an agreement is made between the shipper and the carrier. This agreement is put in contract form, which is known as the freight bill.
All details are on the freight bill. A description of the cargo, its quantity, weight, even the estimated times of pickups and delivery deadlines are presented along with payment method information and associated shipping fees and taxes.
Upon completion of a shipment’s delivery, an invoice is issued to the shipper to be paid. But this is where it can get tricky for the average shipper or small business who doesn’t have a third-party logistics company (3PL) partner. These invoices have a lot of information that needs to be validated, extracted and analyzed to increase supply chain efficiency and effectiveness. This information includes:
- Consignor and consignee names.
- Shipment date.
- Pickup and Dropoff locations.
- Shipment description (quantity, weight, dimensions, etc.).
- Summary of charges and rates.
This validation creates a vital step in the freight billing process: the freight billing audit.
The Freight Billing Audit
Arguably the most important part of the freight billing process is auditing and validating. Invoices received at the end of a shipment need to be validated to ensure it’s not a duplicate or something that’s already been paid. Invoices also need to be verified that they are the right invoice for the right shipper and all the proper documentation is correct, including information from the original Bill of Lading (BOL).
It’s not uncommon for a shipper to receive an invoice after a shipment’s delivery that doesn’t lineup directly with the original quoted freight rate or the BOL. This is where a freight bill audit comes in handy. A freight bill audit identifies discrepancies in your invoice. These discrepancies arise for any number of reasons, namely:
- Fluctuations in freight rates due to market factors
- Clerical errors
- Discrepancies in how quotes were quoted/billed
- Incorrect product classifications
- Mistaken accessorial charges
- Duplicate payments
- Damaged shipments
The freight billing audit is time consuming and complex. If you don’t work with an industry expert, you run the risk of making potentially costly mistakes. That’s why many small and medium-sized businesses work with a 3PL.
A 3PL has the means and expertise to audit a freight bill. There’s also great cost-benefits to partnering with a company specializing in freight billing, validating information and keeping you in the loop when something shipping-related could impact your invoice. Basically, partnering with a 3PL will give you more time to spend running your business, and it won’t add to your bottom line.