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When Auditing Isn’t Enough

–What a Comprehensive Audit Looks Like and the Profit Leaks You’re Likely Missing–

Whether a company ships small packages via parcel carriers, larger items in LTL or Truckload quantities, or imports and exports products via ocean and air carriers, creating a comprehensive invoice audit function is critical to ensure the company only pays what it should pay.  Sounds logical enough-but there is much more to auditing a company’s transportation and logistics expenses that very often is overlooked.

First and foremost, transportation and logistics invoice auditing requires specialized skills that many companies do not possess within their own organizations.  The accounts payable department usually has the responsibility to ensure the invoices are correct before processing those invoices for payment. However, they usually do not have access to the service provider’s base rates, discounts and incentives and the technical expertise to know when various accessorial fees apply and when they are not applicable.

Verifying the charges to be paid on transportation and logistics bills is only part of the audit process companies must consider before paying any invoice.  The first step in the invoice audit process is to make sure the company is actually responsible for paying an invoice in the first place.  A complete understanding of the terms of sale, or terms of purchase is most critical.  It doesn’t matter what charges the carrier or service provider assesses, if the invoice is not the company’s responsibility to pay in the first place.  And yet, we are amazed at how often companies actually pay invoices they are not responsible for paying in the first place.

Comprehensive transportation and logistics invoice auditing should actually be a multi-step process.  The first step is to ensure the invoice being audited should in fact be paid.  The second step in the audit process is to ensure the charges are 100% accurate.  The third and final step in the invoice audit process is to make sure the company is not experiencing any “profit leaks” which can increase a company’s transportation and logistics costs by as much as 30%.

What do we mean by profit leaks; here are some examples.

  • Sometimes, corporate purchasing departments will purchase goods on a delivered basis with the inbound freight costs included in the actual merchandise cost. In these cases, unless a comprehensive analysis has been performed that guarantees the portion of the product cost which represents the freight cost is actually less than the company would be able to negotiate on their own, a company could be losing significant dollars.
  • In some cases inbound freight costs are detailed as a separate line item on the merchandise invoice. Often times in these cases it is impossible for the accounts payable department to discern if the freight charges included on the supplier invoice are in fact as competitive as they should be.  In many cases the supplier will add a “little extra” to the invoice to cover their costs of prepaying the freight costs and waiting for their customer to pay the merchandise invoice.
  • Some companies have waived their right to file claims for refunds for late delivered packages with their parcel carriers. Sometimes parcel carriers will put this waiver into a recently negotiated contract without ever pointing it out to their shipper customer.  In these cases, the parcel shipper could lose tens of thousands of dollars in missed refunds annually they were previously receiving when no waiver was in place.
  • In some instances parcel carriers will offer an additional incentive to the shipper for agreeing to the late delivery refund waiver. The real question for shippers receiving this additional incentive is the need to absolutely be assured the additional incentive meets and hopefully exceeds the refunds the parcel shipper previously received.
  • Profit leaks also come about when shippers fail to properly describe their freight on a bill of lading, especially when the freight classifications are dependent on value or density ratings. Oftentimes when the proper density or value of the goods are not stated properly on the bill of lading, the shipper will be charged the highest rate for that freight classification category.
  • Shippers also suffer profit leaks when they fail to negotiate increased discounts and incentives on a fairly regular basis, especially since almost all freight carriers increase their rates annually. Profit leaks also occur when shippers fail to benchmark the rates they are paying against other shippers with like shipping characteristics.  And, if the shipper does not have the resources in house tom perform those benchmark studies, Third Party Logistics Consultants can provide those resources.
  • Shippers also endure profit leaks when they double insure their shipments by paying the carriers for added insurance while at the same time carrying a corporate transportation liability policy. You would be amazed at how often this actually occurs
  • Shippers that fail to “test the market” through the use of Competitive Bid Processes are also subject to significant profit leaks. And, very often those profit leaks represent substantial lost freight dollars.

Finally, shippers should always entertain outsourcing their transportation and logistics invoice auditing to Third Parties that specialize in providing these services.  Both Pre-Audit and Post-Payment audits are available.  Pre-Audit fees are typically based on a small transaction charge per invoice, while Post-Payment audit fees are almost always provided on a shared contingency basis, so there are no fees if no refunds are received.  It’s a great way to ensure a company never overpays for shipping again.

parcel auditing service how it works at ICC Logistics

The Three Biggest Mistakes Parcel Shippers Make!

Several key factors in today’s fast-paced business world are driving the explosive growth of online shopping.  These factors, such as millennials, (and others for that matter),desire to shop on line, rather than in physical stores; the growth of entrepreneurs starting new businesses to sell just about anything online; and manufacturers needing to sell at the wholesale as well as at the retail level.

The net result of these factors and others, is more and more companies are utilizing parcel carriers to deliver their products to the ultimate consumer.  With this growth comes a need and responsibility to clearly and thoroughly understand all of the rules, regulations, rates, shipping options and legal ramifications of dealing with the parcel industry as a whole.  Today, we’d like to explain what we believe are the Three Biggest Mistakes Parcel Shippers Make.

  1. Not Benchmarking Competing Carrier’s Rates and Services– The first mistake we believe parcel shipper’s make is not understanding all of the options available to them from the ever-growing list of parcel carrier service providers.  Time and time again we witness shippers who never step outside their comfort zone to interview, review and analyze various competing carrier services to benchmark whether they have a good deal or not.  The reality is, if a shipper does not continually benchmark their services and rates they are paying, by default, they accept the status quo and oftentimes that means paying much more for transportation services than they really need to.

Yes, we thoroughly understand that switching volumes of business from a long time preferred parcel carrier may come with some implementation pain.  However, if a parcel shipper does not test the competitive waters they may be boxing themselves into paying higher rates year after year.  Another key point to take into consideration is service level comparisons.  Oftentimes, regional parcel carriers can deliver products faster in certain lanes compared to some national carriers.  What about USPS as an alternative?  This is not your father’s Post Office any longer.

Some additional food for thought; do cable companies, home alarm companies, mobile phone service providers, and other service companies charge their longtime customers more for services than they charge their new customers?  You bet they do and unless a parcel shipper analyzes all of the options available to them on an on-going basis, they will probably pay more year after year as well.  If a parcel carrier feels they have a “lock” on a shippers business, (primarily because the shipper has never utilized a bid process to evaluate the benefits of competing carriers), what incentive would that carrier have to publish lower rates?  That’s correct, absolutely none.  The fact is the incumbent carrier may turn out to be the best choice for a particular shipper, but unless that shipper benchmarks services and rates of competing carriers, they will never ever really be sure.

  1. Read The Fine Print, and More– Most parcel carriers provide their shipper customers with a pricing agreement or contract which outlines the various services to be provided and the associated rates and charges they have agreed to assess for those services.  Warning to parcel shippers!  Don’t just sign the agreement without reading it thoroughly to make sure all of the terms and conditions are EXACTLY as you and the carrier agreed to.  Here are several questions we would ask every parcel shipper who has recently negotiated a new pricing agreement or re-negotiated a contract with a parcel carrier.
  • Did you agree to a Guaranteed Service Refund Waiver with your parcel carrier sales representative?  No, then why is it now in your contract?
  • What Dimensional Weight Divisor did you and the parcel carrier agree would be published?  Is that the Divisor that is now published in your new contract?
  • Do you understand that many parcel carriers make their contracts subject to provisions of a service guide that is not a physical part of the transportation contract you are signing?
  • Do you know the parcel carriers can change the provisions of those service guides at will and do not need to specifically notify each and every one of the customers when they do?
  • Parcel carriers typically provide differing pricing incentives for various service levels, are you sure all of the discounts and incentives have in fact been published exactly as you and the parcel carrier agreed to in your negotiation sessions

Why ask these questions?  Precisely because for some parcel shippers these exact issues have arisen and many of these companies never identified them until it was too late; so our advice to all parcel and freight shippers for that matter is; Caveat Emptor, let the buyer beware!

And, one final point, a very important point; we strongly recommend that each and every parcel carrier contract, or any transportation or logistics services contract for that matter, should be reviewed by a                 qualified Transportation Attorney, before any of those contracts are signed.

  1. Continually Audit Parcel Carrier Invoices– Once the contract has been signed, all parcel shippers should ensure they have a qualified third party audit firm auditing each and every invoice to make sure the rates being charged are the rates the shipper agreed to in its pricing agreement or contract.  The auditors will also be able to file for refunds for Guaranteed Late Delivered packages, as long as the shipper has not waived their right to file such claims.

Parcel Audit firms also provide on-line access to their client’s pertinent shipping data and can even report results based on specific Key Performance Indicators (KPI’s) their shipper customers agree to.  They also provide continuous and meaningful reports on a variety of different metrics so the parcel shipper always has their finger on the pulse of what’s going on with their parcel shipping expenses.  We’ve all heard the statement, “you can’t manage what you can’t measure” and unless your firm has the technical expertise to generate this critical shipping data in-house, outsourced parcel audit firms have all the reporting power a parcel shipper would ever need.

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How to Increase Profits without Selling a Single Product

New White Paper Available for download TODAY!

ICC Logistics is pleased to announce the launch of our latest white paper, “Re-Thinking Profits.” This white paper is a critical read for any organization looking to bring revenue directly back to their company almost instantly. Expense reduction immediately removes excess cost from operations thereby significantly improving profits. Chock full of “how to’s”, data and advice, our latest white paper is a must read for anyone looking to increase profits instantly– which is just about everyone, am I right!?

So, what are you waiting for? Click here and Download it today!

Tony Nuzio, ICC Logistics

Creating a Robust Contract By Tony Nuzio

Check out Tony Nuzio’s article on creating a robust transportation contract in the current issue of TransDigest, available here

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Seven Steps to Better Negotiating: Tony’s Top Tips

We’ve said it before…negotiation is a fine art. Whether you are negotiating logistics contracts, salary terms or new partnership agreements, proper negotiating tactics yield tremendous results. Below are seven of my top tips for negotiating in business and beyond.

1. Know The Rules. The better you know the rules of engagement, the more effectively you’ll make your case. By rules, I mean the terms that govern the buyer-seller transaction. Terms can be detailed in the contract you signed, defined by state or federal legislation, codified by regulatory decisions, or specified in industry practices or codes of ethics. The rules may be complex and always subject to change. Don’t negotiate anything until you know all of the rules you will be subjected to.

2. Update Your Knowledge Base. In other words: Keep current on industry trends and keep learning. The more you know about your business, and the more you know about your suppliers’ business the better off you’ll be.

3. Bring Time To The Negotiating Table. While money is rarely, if ever the only transaction variable, often it becomes the sole focus of negotiators. You know the scenario: one side says $X, the other says $2X, and confrontation begins. To break the logjam, bring other variables to the negotiating table such as time. Can you, for instance, accept a protracted delivery schedule? Will your vendor further discount the invoice if you pay their invoice promptly? Can your service provider accept payment in 60 days rather than 30 days?

4. Give To Get. Before you sit down at the negotiating table be prepared to offer several concessions in return for what you actually need.

5. Understand Your Own Goals. Too often businesses sit down at the negotiating table without having assessed their own long-term goals. Ask yourself: What do you really seek from your supplier or strategic business partner in this intended relationship? What will it take to arrive at that goal? The answers may totally reshape your deal-making process.

6. Never Use Criticism To Leverage Price. Yes, most businesses sit down at the negotiating table to lower their costs. But don’t knock the service provider’s service currently being provided to your company, don’t belittle the other teams negotiator or the products they sell and don’t demean the vendor to get what you want . Believe me, you won’t. get what you think you’ll get.

7. Always Be Courteous and Professional. I’ve seen too many negotiations boil over because the parties at the table took things personally. Remember this is not about you, it’s about achieving desired results that affect many more individuals than yourself.

I hope these tips prove helpful to you.

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Transportation and Logistics Consulting firm ICC Announces a Free Webinar on March 31st at 2pm, “The Art and Science of Negotiating Logistics Contracts”

— ICC Logistics Services announces free webinar to explore challenges of transportation and logistics contracts negotiations and how to come out on top. Registration now here: http://bit.ly/1BKV4OK .– 

ICC Logistics, in coordination with HLC Government Services, government contract negotiation consultants, announces today its latest webinar: “The Art and Science of Negotiating Logistics Contracts.”  The webinar, which is free to participants, will take place on March 31, 2015 at 2pm EST.  Register Now by clicking the orange button below.

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ICC will discuss the seven critical mistakes that companies make when negotiating Transportation and Logistics contracts, as well as the keys to success to obtain a contract that’s truly advantageous. The webinar is designed to increase the efficiency of the negotiation process with Transportation and Logistics service providers, to save participants time and save businesses money to increase bottom line profits.

Will there be Q&A?

Yes. There will be Q&A at the end.

Who is the webinar designed for?

The webinar is designed for businesses spending over $100,000 annually with transportation and logistics services providers.

How do I register right now?

To register for this webinar, visit https://attendee.gotowebinar.com/register/1484718195063248642.

For information, call (516) 822-1183. For more information on HLC Government Services visit http://www.hlcgovservices.com/.

We look forward to the discussion.

© ICC Logistics Services, Inc. All Rights Reserved.
960 South Broadway, Suite 110, Hicksville, NY 11801 (T)516-822-1183 (F)516-822-1126
Parcel shipping experts especially convenient to New York,including Long Island (Nassau County, Suffolk County), NYC, New Jersey (NJ), Pennsylvania (PA), North Carolina (NC), South Carolina (SC), Georgia (GA), Florida (FL), Virginia (VA), Connecticut (CT), Delaware (DE).