How to Recoup ~5% of Your Shipping Spend with Invoice Audits
How frequently do you audit your FedEx and UPS invoices? Every week? Every month? When your shipping spend seems too high? Never? You might want to take another look at the value to be gained from auditing every parcel invoice.
How much is 5%?
The small parcel carriers make errors on an average of 2%–5% of invoices (at times, a lot more). Calculate how much 5% of your FedEx or UPS spend comes to. It’s a big number, right? That’s how much you’re missing out on getting back from the carriers if you don’t audit their invoices and apply for the refunds that are owed to you.
OK, we get it. You deal with thousands of small parcel invoices each month, and the thought of having to match every single one against the data in your system and the terms of your service agreement, and then find the service failures, inaccurate DIM charges, and other errors hidden among the hundreds of thousands of data points is enough to make even the most pedantic, detail-oriented person hide their head under a blanket.
It’s called “breakage”
There is a reason that the service agreements are so complex and the pricing and discount terms so hard to understand. This is a classic example of a type of strategy sellers of every kind use. They count on a (usually large) percentage of customers not putting in the time and effort to get the discounts or refunds they’re owed. The term for this is “breakage.” Breakage is the percentage of customers who pay full price even though they don’t have to.
So how much is being a breakage statistic costing your company annually? What else could be done with that money? Could it be used to offset the cost of providing free shipping to your customers? For R&D? To open a new distribution point to gain greater efficiencies? There are innumerable ways that up to 5% of your shipping spend could be used other than donating it to the carrier.
So, what’s the solution?
How do you audit your shipping invoices and get the refunds without either going crazy, expending a huge amount of internal resources (time, human labor, software expenses), or paying a lot of money, you ask? One way that many shippers handle this problem is to outsource it. Not offshore, but to a US company that will do all the work without your having to think about it, and charge only a percentage of the savings gained.
By having a third party do the work, you can concentrate your internal resources on growing the business and also recoup the costs that result from carrier errors, such as:
- Fuel surcharge errors
- Incorrect billing address
- Wrong PO number
- Wrong weight calculation
- Duplicate shipments or invoices
Third-party audit service providers use powerful software that will also find other inefficiencies in the supply chain. Parcel data can provide insights into carrier performance and your overall network efficiency, down to the package level. Armed with this data, you can then eliminate or reduce the inefficiencies in your supply chain and streamline processes to gain soft-dollar savings — in addition to the hard-dollar savings from the refunds found in the audit.
The bottom line
A partnership between a small parcel shipper and its audit team provides value across the logistics supply chain. It’s a simple way to remove cost and waste from your company, while ensuring that the terms of your carrier agreement are being met.
At First Flight Solutions we believe no shipper should have to be a breakage statistic. For this reason, we provide small parcel rate negotiation and invoice audit services to large-volume FedEx and UPS shippers. We’ve saved hundreds of companies over $100MM in the past ten years. To learn more, visit www.firstflightsolutions.com.