Vendor Purchasing Agreements: Who’s Complying?

Most organizations have vendor purchasing agreements, an agreement that notes how much you pay based upon the purchase volume.

During the course of our ongoing work for a client, we recently discovered an issue (error) with the vendor complying with purchasing agreement terms. In this case, we were auditing for compliance with carrier usage on the transportation side. Over the course of our work, we were introduced to a much larger issue: compliance with the purchase agreement terms.

This client’s purchase agreement terms indicate that freight is included for the merchandise being purchased if the merchandise is over a certain dollar amount. Under that threshold, our client is responsible for the freight charges. We audited shipments for which our client paid the freight charges and found an error in 34% of those shipments. This freight should have been billed to the vendor’s (shipper’s) account.

You might wonder why someone didn’t catch this. The invoice from the vendor showed the freight as “prepaid and allowed.” Therefore, the AP folks would never know to look. The bill of lading on the shipment from the vendor showed the charges as “freight collect.” The company that audits the freight invoices shows these as being billed correctly. Therefore, everything checks out just fine.

Keep in mind this is a long-standing client, and we have access to both the invoices from the vendor and invoices from the carrier. Our team performs a compliance audit and finds thousands of dollars in freight that our client should have never paid. The vendor has graciously agreed to issue a credit to our client for the errors.

Who’s checking your vendor compliance? If you are not sure, you might consider reaching out for help.

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