In this post I will outline 9 items that you should be checking as part of your invoice approval process.
As part of our role as a Logistics Manager we need to ensure that what we are being charged for by our freight forwarders and customs brokers are not only in line with our rate schedule but also compliant with the relevant customs regulations.
In previous posts I have written about understanding international freight forwarding costs and understanding customs clearance costs but in this post I will focus on the process of checking the invoices that you receive from your international freight forwarder or customs broker to ensure that they are correct.
It is a well known fact that the error rates on charges from international freight forwarders, customs brokers and cartage companies can be quite high and not undertaking a thorough auditing process could lead to significant amounts of money being unnecessarily paid.
Furthermore, an incorrect customs value or an incorrect tariff classification may result in financial penalties being imposed by the customs authorities if customs duty is short paid as a result of erroneous information being declared on the customs entry at the time of importation.
Invoices from your international freight forwarder will typically fall into two cost categories:
- Freight and Service Charges
- Duty and Tax Charges
Both categories and 9 key items that you should be checking for are discussed in detail below.
Freight and Service Charges
These charges can include:
- International freight charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments
- Additional freight surcharges may include – wharf or aviation security fees, a bunker adjustment factor (BAF) for sea freight shipments or a fuel surcharge for air freight shipments
- Local handling charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
- Sea freight charges may include – port service charge (PSC) , sea cargo automation and compliance fees and a delivery order fee
- Air freight charges may include – airline handling fee, airport terminal fee and an airline documentation fee
- Customs Clearance and Delivery charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
- Import customs clearance fee (agency), cartage charges and a fuel surcharge fee
As part of the invoice approval process the following items should be checked:
- Check the shipping documents to make sure that you are not being billed for someone else’s consignment
- Check the shipper and the consignee details are correct
- Compare the arrival date of the shipment and the service providers invoice date to make sure that you are being billed within a reasonable time frame after the arrival of the shipment
- Check flight date for air shipments and the on board date for sea shipments
- Requesting a discount for late billing is an option that can be explored
- Ensure that the origin port and destination port on the invoice match those on the airway bill or bill of lading
- It is this combination of port pairs that drives the rates that will be charged by the service provider
- Ensure the freight rates and the service charges that have been invoiced are consistent with what you have agreed to as part of your published rate schedule
- The provision of rate schedule with a predefined validity period is a normal expectation
- Ensure all calculations are correct
- Check the currency being used is correct
- Check the exchange rates being used are acceptable – freight forwarders have a habit of using exchange rates as a means of revenue raising
- Check the quantity and rate calculations are correct e.g. USD 3.50 per kg x 50 kg =
Duty and Tax Charges
Import duty and import taxes are calculated based on the import value of the goods.
In Australia the import duty payable is calculated by multiplying the FOB value by the duty rate and the GST payable is then calculated by adding the duty to the CIF value of the goods and multiplying this amount by the GST rate
If the FOB value is $1000 and the duty rate is 5% then the amount of duty payable is $50
If the CIF value is $1100 and the GST rate is 10% then the amount of GST payable will be $115 – ($1100 + $50) x 10%
The total duty and GST payable on importation will be $165
Prior to approving an invoice for duty and tax the following items should be checked:
- Ensure there is a “tie up” between the shipping documents (air waybill / bill of lading) and the commercial documents (invoices / packing list)
- There should be a common identifier on all documents to ensure the correct goods are being entered for customs clearance purposes
- Ensure that the correct customs value has been used for duty calculations
- The total value of the commercial invoices should equal the value shown as the total invoice value on the customs entry to ensure compliance with customs regulations
- Ensure the rate of duty being applied is correct
- Duty rates can vary based on the country that the goods are being imported from and as can also be different as a result of any trade agreement that has been established between the two countries
- Duty rates can also vary depending on the tariff classification of the goods
- Ensure all calculations are correct
- In most cases the amount of duty and tax payable is calculated automatically when the customs entry that is submitted through the customs import system
- Providing the value for duty and the duty rates are correct there should be no issues with the amounts that have been calculated and are required to be paid
Whilst thoroughly checking each invoice will increase the time it takes to perform your invoice approval process I can guarantee the investment will definitely result in credits for incorrectly charged fees and will also remove the risk of any potential customs compliance issues.
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