How to Automate Freight Invoice Reconciliation in Dynamics 365

Caroline Mayou

Caroline Mayou

Introduction

The enterprise need for a freight reconciliation process is paramount for any business that ships goods to customers. The freight reconciliation and freight charge review process ensures that organizations receive the correct amount of goods, as well as timely delivery of goods, at the agreed freight charge and cost. This helps organizations in avoiding unnecessary losses due to errors in shipment, delivery and helps AP teams and AR teams with passing on agreed freight charges to customers.

According to a 2017 survey by the Global Supply Chain Council, 61% of supply chain professionals said that invoice matching was the most challenging process in their accounts payable department. The survey also found that 63% of respondents experienced invoice matching errors due to discrepancies between purchase orders and invoices. Additionally, the survey reported that only 21% of respondents had a fully automated invoice matching process within their organization.

A freight reconciliation process can help organizations reduce costs associated with overcharging, late deliveries, and lost or damaged goods. In addition to ensuring timely and accurate delivery of goods, a freight charge reconciliation process can help businesses in streamlining their operations. For example, organizations can track their shipments more efficiently and accurately, helping them optimize their inventory management, reducing their costs, passing on freight charges per customer billing agreements and ultimately improving their bottom line.
The freight reconciliation process is an important tool for a number of industries that are involved in the transport of goods. In particular, the 3PL providers, logistics and transportation industry needs to ensure accurate record keeping and billing for services provided along with ensuring the goods are delivered in a timely manner and that the end customer is satisfied with the services provided.
The freight reconciliation process is also important for the retail and manufacturing industries. Retailers need to ensure that the goods they receive are in good condition, and that they are not damaged or missing in transit. The process helps to ensure that the goods are accounted for, and that any discrepancies between quantity of goods shipped and received are noted and addressed. Likewise, manufacturers need to ensure that the goods shipped are of the required quality and quantity and that any discrepancies are noted and addressed with the supplier. As such, the freight reconciliation process serves an important role across all industries.
In this blog post, we’ll dig deeper into the freight reconciliation process and provide an overview of the reconciliation process available to customers within Dynamics 365 Finance.

What is a Freight Reconciliation Process?

A freight, or carrier reconciliation process is the methodology for confirming that the amounts charged for freight services by a third-party provider are accurate and complete. The process involves work across different teams from warehouse teams to AP teams as well as customer billing teams for passing on freight charges where applicable. Overall the process covers documenting or tracking the freight services from the provider, the amounts charged, and comparing them to the freight charges and dollar amounts in the contract.

This process is essential for any business, as it ensures that the costs associated with freight services remain in line with the budget. The freight reconciliation allows enterprises to more effectively manage their freight costs. By comparing the contracted rates with the actual charges, businesses can identify any discrepancies, such as incorrect charges, or billing mistakes. This process also allows businesses to audit their freight providers and identify any inefficiencies in the system. This allows businesses to nurture relationships with carriers or vendors, negotiate better rates with their providers and optimize their shipping costs.

Finally, the freight reconciliation process also has an AR and billing dimension which is important for the bottom-line of the business. By ensuring freight services are accurate and complete, businesses can have a better understanding of their financial position. This allows businesses to make better decisions when it comes to their finances, as they can accurately asses their expenditures on freight services. Identifying any discrepancies in the data and ensuring accuracy can also help businesses reduce the chances of fraud, or other financial issues. It helps organizations to ensure that they are paying the correct amount for the freight services they are receiving and helps to ensure they are not overpaying for the service. If discrepancies are found, the freight reconciliation process can help organizations quickly rectify them.

Automate Your Invoice Matching Process

Interested in learning more about how to automate you freight reconciliation process? Request a demo of Dynamics 365 Supply Chain Management

What Roles are Involved in the Freight Reconciliation Process?

The freight reconciliation process requires many different roles in order to be successful. The first role is the shipper, who is responsible for packaging and shipping the goods. The second role is the carrier, who is responsible for transporting the goods to the destination. The third role is the receiver, who is responsible for receiving the goods at the destination. The fourth role is the freight auditor, who is responsible for verifying the accuracy of the freight charges and other related documents. the fifth role is the freight reconciliation specialist, who is responsible for resolving any discrepancies between the freight charges and documents. A sixth role crosses AP and AR billing teams and covers freight charge billing to Customers. By working together, these roles ensure that the freight reconciliation process is successful and that all parties involved are satisfied with the outcome.

Understanding Freight Reconciliation in Dynamics 365 Finance

Freight reconciliation in Dynamics 365 Finance is the process of ensuring that the freight charges applied to an invoice are accurate. This process involves comparing the carrier charges on an invoice to the carrier charges on the shipping documents, such as the bill of lading. If the charges are not in agreement, the discrepancy must be reconciled in order to ensure accurate and timely payment to the vendor. The process may also involve working with vendors to ensure that the freight charges are accurate and that they are applied correctly to the invoice.

Freight rates are calculated by a rate engine that gets associated with a relevant shipping carrier. When a load is confirmed, a freight bill gets generated, and freight rates are subsequently transferred to it. Freight rates are then allocated as miscellaneous charges to the relevant source document (i.e. purchase order, sales order, and/or transfer order), which will depend on the setup the business uses for the regular billing process.
The freight reconciliation process (also known as a matching process) starts as soon as the freight or carrier invoice arrives from the shipping carrier. The invoice can be received in a multitude of ways- either electronically or on paper. If the invoice is received on paper, an electronic invoice can be generated by using the freight bill as a template.
Freight bills matching process

Matching is the process of finding the freight bills that correspond to each freight invoice. Matching can be done by either matching the invoice lines one-by-one (manual matching), or by matching all available invoices at once (auto matching).

Matching Freight Invoices Manually in Dynamics 365 Finance

If your business reconciles freight manually, invoice lines must match each freight bill line or lines for the load that is being invoiced. This is done on the Freight Bill and Invoice Matching page. If the amount listed on the invoice line does not match the freight bill amount, then a reconciliation reason must be selected to justify the difference. If there are several reasons for reconciliation, you can split the unmatched amount across them.

The reconciliation reason is what determines how the difference amounts are posted in the general ledger (GL). When the reconciliation of the whole invoices amount is accounted for, it gets submitted for approval, and subsequently, the journal is posted.
In manual matching, all freight bill with positive amounts are available for matching. The user will only be able to match freight invoices with negative amounts to freight bills not fully matched.
Shows how to generate a freight invoice and do freight reconciliation
Manual freight invoice matching is not a good best practice as it can be tedious, time-consuming and error-prone. It is often difficult to manually track all the paperwork related to the invoice process. This can lead to delays in payment, incorrect invoices and discrepancies sin the data. Manual freight invoice matching also requires a great deal of effort and resources, which can become costly and inefficient. In addition, manual freight invoice matching can also lead to incorrect data entry, which can result in incorrect taxes and surcharges being charged to the business and the end-customer.

Automatic Reconciliation in Dynamic 365 Finance

Leading companies are investing in technology and software to help automate freight reconciliation processes. However, freight auditing software and automation software alone isn’t enough to fix bad processes. In some cases, businesses find themselves even more at risk because they deployed the wrong technology or attempted to automate a process that was already chaotic, archaic, sloppy or manual. The first step to automating any process, is to document it and analyze it to find what needs to be changed, automated, and/or thrown out. In order to ensure an automation initiative helps the business with freight invoice processing, warehouse managers, back-office managers, and supply chain leaders can follow tips listed below:

1. Create a process map to show the back-office work involved with freight invoice processing.
2. Prepare your team to be open to changing what is currently broken
3. Review your existing back-office KPIs and create new ones that will measure the impact of automating the process at hand
4. Create open communication with your supply chain and back office teams to understand hidden sources of friction and/or inefficiency. Document their feedback and outline a change management process by bringing them into the automation initiative so that it is not ffeared.
5. Set goals. Can you reduce your Account Payables teams’ workload from 60 invoices per person per day to manually adjusting 2? Can you process 300 invoices a day instead of 75? What is your current benchmark and how do you hope to impact it through automation?

Now that we’ve gone through the change management aspect, let’s talk about the software involved. In order to use automatic freight reconciliation within Dynamics 365, you must first create a new freight reconciliation process, define the reconciliation rules, and set up the accounts and dimensions. Then, you must configure the product and vendor accounts to be used for the freight reconciliation. This can be done by creating a new product and vendor account with the necessary information such as name, account number and currency. To set up reconciliation rules, you must define the rules for matching the freight invoices and payments. Finally, you can scheduled the job for freight reconciliation. This can be done using the Dynamics 365 Finance Scheduling tool to create a recurring job that runs on a specific defined schedule. It is important to note that a process to monitor the reconciliation process must be done as well. You can do this by creating a report to view the status of the process. From there, the matching of the invoice lines and freight bills is done in accordance to the setup of the audit master and the freight bill type. To automate the process, you can use the Finance Automation tool to create a workflow that automatically performs the process.
When matching several freight invoices to the same bill, the process for auto matching works in the following way:

1. The freight invoices not matched get sorted by amount, with the largest amount first
2. The freight invoices get matched one-by-one, until the freight bill has no positive amount left
3. Depending on the audit master set up and the remaining amount on the freight invoices, the remaining amount is set

Terms to Know When Automation Freight Reconciliation in Dynamics 365 Finance

There are a number of terms to be aware of when setting up data for automatic freight reconciliation.

  • Freight Bill Type:

    Defines how freight bills and carrier invoices should be matched

  • Freight Bill Type Assignment:

    Used to specify which freight bill type is used for a particular carrier

  • Audit Master:

    Defines the tolerance limits for automatic freight reconciliation. It specificies by how much the monetary amounts on the freight bill and the carrier invoice can differ while still allowing reconciliation to occur. It also defines how to handle discrepancies.

  • Overpayment reason code:

    If the monetary amount differs on the freight bill and the freight invoice, the overpayment and underpayment reason codes specify the accounts that the difference gets registered on, as long as the difference is within the tolerance levels.

Closing

Automating freight invoice matching is essential for streamlining supply chains and ensuring accurate shipment data. It enables businesses to quickly and accurately process invoices, eliminating the need for manual data entry and ensuring that invoices are accurate and timely. Automation also reduces the chances of discrepancies between invoices and actual shipments, which can lead to costly errors and delays in the supply chain.
For more information on automating the freight reconciliation process in your business, reach out to Avantiico and request a demo of the Dynamics 365 automation capabilities.

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