Digital transport and logistics platforms can offer a seldom discussed but significant benefit for the forwarder and/or carrier: financial protection. This important capability rarely enters the current dialog, which focusses on how the software allows companies to provide a better service to their end customers.
Over the last 20 years several large, commercially successful companies have gone bankrupt or had to sell because they got into financial difficulties. This would not have happened if they had been using a global, digital accounting platform rather than running separate systems at each office.
International Logistics involves highly complex, specialized accounting requirements that can be difficult to meet:
1. Revenue and costs are accrued at both origin and destination, and sometimes in between. When using traditional, decentralized computing it is difficult for any one individual to ensure that the full accounting process has been set up for each shipment. It is too easy to make the assumption that an invoice or cost is not shown locally because it has been captured on the ‘other side’. As a result, many shipments go uninvoiced or uncosted.
2. Most desk-level operations users are not trained bookkeepers, but must still assume responsibility for shipment-level accounting although their primary job responsibility is to move freight. The accounting is an administrative necessity but also a nuisance.
3. Most TMS accounting functions are set up to capture information, but not to guide the user through the correct processes. It is too easy to make basic mistakes that throw off the Income Statement and the reported profit for each period.
4. Financial controllers are unable to see both sides of a transaction (Origin vs Destination) and there are very few patterns to key off of; both cost and sell rates change constantly, and many different routes exist, each with its own cost and price.
5. Add large transactional volumes with low and varying margins to the above complexities, and your accounting process is faced with some serious challenges.
We have heard from several professional accountants that they never imagined the International Logistics accounting process would be so complicated.
What can a digital platform do to resolve this issue?
1. Bringing both sides onto the same platform is a huge step forward. Now, all parties can see the full transaction on one report regardless of where the transaction took place: at origin, at destination, or somewhere in between.
2. The process can be programmed and automated so that it follows a standard process, exactly the way a machine on an assembly line always turns out an identical product. This includes items such as:
a. Setting Revenue Recognition Dates to automatically ensure that all revenue and costs go into the same accounting period, and profits are accurately displayed.
b. Auto-rating invoices and Auto-Costing accrued payables.
c. Ensuring that costs are accrued when the booking is made and not when the vendor invoice arrives. This common mistake is one of the biggest causes of inaccurate Income Statements; these mislead executives into believing they have more profits available to invest or spend than actually exist.
d. Automating Credit and Debit Memos. The system knows when these are required and what was on the invoice that is being credited. It does the work, relieving users of the need to keep track of and fill in the data.
e. Providing automated settlements and a clearing house to handle the work required in settling each shipment between origin and destination.
These digital functions at the heart of a strong, global logistics platform are what ensure the financial health of the forwarder or carrier. They allow the company to grow rapidly without getting into financial trouble, even as the global supply chain expands to new, far-flung locations around the world that are only beginning to catch up with the expertise found in trade hubs that have thrived during the past 30 years.
Talk with us about what our Trade Cash application can do to automate your accounting process, free up your staff to focus on moving freight, and ensure your financial health at the same time.
