Master freight accounting in the digital era

Table of Content:

Let’s Decode “Freight Accounting” in the Digital Era
What is Freight Accounting – in Simple Words!
The Risks of Sticking with Manual Freight Accounting
Unlocking the benefits of Digitalization
Transform Your Freight Accounting Process
How a Chemical Fortune 500 Company Transformed its Freight Accounting
Conclusion

Let’s Decode “Freight Accounting” in the Digital Era

We all know how unpredictable and fast-paced the logistics industry can be. To keep your business thriving amidst the chaos, mastering effective freight cost management is essential! In this blog, we’ll walk you through the foundational aspects of freight accounting, tackle its inherent challenges, highlight the vital role of digitalization, and share best practices for streamlining and optimizing your freight costs.

Let’s dive in!

What is Freight Accounting – in Simple Words!

Freight accounting is all about carefully tracking and managing the money spent on moving goods. It includes everything from setting up carrier arrangements and contract terms to managing rates, penalties, and extra charges, and handling payments and invoices. Essentially, it ensures that every financial aspect of your logistics operations is transparent, accurate, and efficient.

The Risks of Sticking with Manual Freight Accounting

Traditionally, and specifically in an Indian context, freight accounting has been a manual and time-consuming process, prone to errors and delays. The challenges include invoice discrepancies, data entry errors, and the complexity of managing multiple carriers and sometimes varied contract terms and conditions along with it.

The process of bill submission and settlements is decentralized and hence, often lacks transparency.
Due to resource skill gaps at the Transporters’ side and manual preparation of invoices along with backups, typically 15%~20% of bills are submitted with error.
The accounts team needs to be extra vigilant to spot the bills with errors and hence, they need extra effort in scrutinization; also disputed bills often take 3X time for settlements.
Manual validation of critical data points such as verification of Proof of Delivery, Delivery Order Number, Lorry Receipt Number, and Vehicle detail etc. is a time-consuming process and human efficiency dependent.
Limited visibility exists in terms of the overall process, status, and exceptions.
Delays in receiving credit/debit for duplicate invoices and GST invoices.
Reconciliation challenges frequently arise in disputes over rates between transporters and Logistics Teams.
Documentation, including invoices, receipts, and permits, poses significant challenges for freighters and transporters. Managing and organizing these documents to meet audit requirements is time-consuming.

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Unlocking the Benefits of Digitalization

In this digital age, the need to streamline and automate these processes has become imperative due to the scale of operations and time pressure. Digitalizing freight accounting brings several advantages, such as:

1. Accuracy:

Automation reduces the risk of human errors in data entry and calculations, ensuring accurate financial records.

2. Efficiency:

A digital platform automates Freight Accounting—calculating provisions, generating invoices, processing payments, and handling exceptions with digital records—significantly reducing time and effort. This accelerates tasks and cuts scrutiny needs by 80% to 90%.

3. Visibility:

Real-time tracking and reporting provide enhanced visibility into the financial aspects of freight operations (Transporter, Logistics & Finance team), enabling informed decision-making.

4. Cost Savings:

Automation eliminates the need for manual efforts and reduces the likelihood of errors causing money leaks, ultimately leading to significant cost savings. Also, allows businesses to negotiate better Invoice Discounting models on account of faster bill processing TAT.

5. Centralized Data Management:

A digital logistic partner will help in maintaining a centralized repository for all financial data related to freight operations, facilitating easy access and analysis. Also, provide alerts & notifications to shareholders as and when required.

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Transform Your Freight Accounting Process:

Reducing costs in freight accounting involves a combination of strategic planning, leveraging technology, and continuous process improvement. Here are some best practices to consider:

Relook into the existing processes:

For the greater good, it is essential to first introspect and identify key bottlenecks hindering optimization before investing in new technology and resources. An Existing State Value Stream Map is often found to be of great help in achieving this objective.

Conceptualize the To Be State:

Once the Existing State is clear, underline automation scopes and potential optimizations in terms of effort and cost. Thoughtfully design the To Be State with a Digital makeover to pinpoint key objectives of the Digital Transformation project.

Invest in Technology:

Technology is core to transforming Freight Accounting processes. Before deploying technology, research market solutions, considering their USPs and shortcomings. SaaS platforms offer flexible, customizable solutions; in a Make Vs Buy scenario, BUY often has advantages in a Digital Transformation journey.

Ensure Efficient Project Management:

Transformation projects require involvement from all stakeholders. Form a core project team with CFT representation to define milestones, KPIs, monitor progress, and support removing impediments for successful project execution.

Automate Invoice Processing:

Digital logistic partner automats systems for invoice processing to reduce the time and resources required for manual verification.

Conduct Regular Audits:

With a 100% audit system, regular audits can easily be done to identify discrepancies, errors, or areas for improvement in freight accounting processes.

Analyze Performance:

Digital logistic partner provides multiple analyses & reports for evaluation of different parameters from carrier performance to their financial performance and impact on business.

How a Chemical Fortune 500 Company Transformed its Freight Accounting

At SuperProcure, we had the privilege of collaborating with a leading Indian chemical giant on their digital transformation journey. This organization managed multiple product segments on a large scale and operated several business divisions, resulting in extensive fleet operations and a laborious manual process for handling incoming freight bills.

By introducing the Integrated Logistics Management System (ILMS), we simplified truck indenting, provided in-transit visibility, digitized LRs and PODs, and enabled live KPI monitoring. Once the operational part stabilized, our goal was to transform the Freight Accounting process with the following objectives:

– Reduce workload on Accounts & Payable

– Create complete visibility for transport partners

– Eliminate the effort required to correct billing errors

– Ensure faster payment turnaround times without the need for follow-ups

After implementing Digital Freight Accounting, both external users (transport partners) and internal users (accounts and payable) quickly recognized its potential to simplify and accelerate daily tasks. This led to adoption reaching nearly 100% within a couple of months, and the team observed significant improvements in major freight accounting KPIs shortly after implementation.

Conclusion

Now that you’ve reached this point, you likely understand how crucial effective freight accounting is for your business’s success. Digital solutions such as TMS streamline freight accounting by automating tasks, reducing human error, and speeding up processing times, freeing you to focus on strategic decisions instead of repetitive tasks.

With real-time tracking and live KPI monitoring, you gain comprehensive insights into your freight operations. This visibility allows you to make informed decisions quickly and address any issues promptly. In conclusion, digitization drives efficiency, enhances visibility, and delivers substantial cost savings, positioning companies for long-term success!