Overpaying On Shipping Invoices? Here's How To Fix That
Sep 27, 2017
Many firms find themselves struggling today to stay afloat as restrictive bank lending, rising problems collecting receivables, and reduced consumer and business demand have combined to make running a profitable business very difficult.Companies surviving and thriving in this environment are going back to the basics and analyzing every aspect of their operations and supply chain – and one of the first areas that should be analyzed is Accounts Payable.
Over Payments: Sloppy Accounts Payable or Fraud?
Regardless of the size of the business, payments to vendors represent the single largest category of spending in most companies. While email and e-commerce makes business communications faster and easier, a huge amount of paperwork is still generated, and must be linked up to the relevant contract.
The issue is not paying an invoice twice; the issue is when the vendor –either deliberately or by accident – overcharges your business by invoicing incorrectly or by adding fees outside of the contract – with freight bills being the largest source of incorrect payments. Do you know what the codes in the freight rate sheet mean?
- Invoices & Routing: Even the most sophisticated logistics and supply chain operations can be plagued by vendor errors that directly affect profits. Industry experts estimate that inaccurate freight bills and a failure to comply with established routing guidelines can add an estimated 6% to annual shipping costs.
Whether you ship goods around the world or to the next town, auditing for freight compliance can help you identify overpayments and inconsistencies such as fuel surcharges, non-adherence to a freight contract, selecting the wrong carrier or the wrong shipping method.
- Audit-Audit-Audit! Auditors help you find and recoup duplicate payments, use credit memos issued, capture missed discounts and a host of other errors that can impact your bottom line. To ensure a more comprehensive audit, the more sophisticated auditors or accountants use software tools to scan procure-to-pay data and link invoices to contracts; this is the best way to catch those erroneous payments before they affect both cash-flow and bottom-line performance.
Profitable companies rely on routine audits to detect errors and recover dollars paid erroneously to vendors, with “routine” the operative word. Experience shows the ability to recover dollars-overpaid drops drastically the longer it goes unchallenged after the invoice is paid, so it’s essential to audit your payables regularly.
- Contract Compliance: Negotiating contracts with suppliers can be a long and demanding process, but when negotiations are complete and the goods begin to flow, it’s essential the vendors comply with the new contract terms and prices – and it’s essential the buyers check the invoices for accuracy.
A recent study said that nearly 40% of the cost savings negotiated from suppliers never made it to their bottom line; negating much of the purchasing department’s efforts. Often human error is the cause as overworked Accounts Payable staff simply enters the invoice into their system without checking to see if the invoice reflects the new contract.
- Fraud is a large and growing problem for today’s businesses, especially during difficult economic times.
The Association of Certified Fraud Examiners estimates that 7% of a typical company’s revenues are lost to fraud each year. The problem in shipping is determining if a vendor’s invoice with unwarranted fuel surcharges were added deliberately or due to ‘computer error” – hence the need for constant auditing; once is an error; multiple ‘computer errors’ likely are deliberate.
While larger companies are more likely to employ sufficient staff to catch such issues; smaller companies also need to instruct their bookkeepers or accountants to audit A/P for accuracy.
Jan 2018 Ocean Freight Rates at a Glance
Watch this 30-minute webinar to get an analysis of the short and long-term ocean freight rate movements for three main trade lanes.
Preserve & Protect Your Bottom Line
A typical large corporation is said to buy 300 - 500 materials unique to its business and has multiple sources of supply for each in order to diversify reliability of supply. It’s a balancing act: does one put production at risk if signing a sole-source supply contract that minimizes paperwork, or does the risk of erroneous payments rise exponentially if multiple vendors are used?
Effective supply chain management today needs both an effective strategy for managing sourcing and shipping decisions as well as verifying the accuracy of the vendor’s paperwork.
Pro-actively managed companies are moving beyond A/P’s traditional audit-and-recover to focus on prevention. Instead of relying on traditional manual auditing, firms are utilizing specialized software that monitors their payment process. Such systems enable the company to correct any errors before the Euros or dollars are paid-out, making it unnecessary to chase credit memos or cash. Proactive prevention allows you to detect duplicate payments, take advantage of prompt discounts, and be alerted to careless or fraudulent vendors.
While strategic vision is needed to determine your company’s long-term direction and goals, in today’s challenging times cash management is the tool that provides an honest look at how your company is performing and what financial resources are needed to reach those goals.
Look for Savings in All Stages of the Supply Chain
For sure, eyes should be pealed for mishaps in invoices to make sure freight rate costs are accurate. However, always remember that if full visibility into freight costs is applied at all levels of the supply chain, savings can come in truckloads.
That's we at Xeneta can't stress enough the importance of having all the insight and intelligence needed when negotiating freight rates with your supplier. Make sure you know how the market is moving. What is the market average for my #1 trade lane? Am I getting the best rate from my supplier? Should I perhaps move X amount of TEUs to short-term or long-term contracts? Protect your bottom line - get smart with actionable metrics based on facts.
Learn how Electrolux Uses Xeneta to Stay Competitive in the Container Shipping Market