What Is Freight Accounting? Key Challenges, Best Practices

Below are the benefits of freight accounting for businesses in the logistics industry:

• Greater Financial Control and Shipment Visibility: A freight expense account lets you record all freight-related costs (freight-in and freight out payments, inventory management, etc.) and use them for future expense planning. You can also use the data from your financial accounting information to see how the shipment has progressed.

• Increased Accuracy and Efficiency: Freight accounting automates critical accounting processes, reducing the potential for human error. It also makes storing and tracing any shipment document or invoice easier.

• Improved Financial Modeling and Analysis: Freight accounting streamlines the process of reviewing previous freight expenses for financial modeling and analysis. Plus, it also helps you create financial statements for freight forwarding deals since you have all your freight accounting documents in one place.
  
  
• Enhanced Integration and Collaboration: Most freight accounting software integrates with your freight forwarding or shipping processes. This helps smoothen collaboration between managers, employees, and third parties who can view assigned tasks and schedules.

• Streamlined Tax Procedures: Filing taxes takes less time and effort when you can easily access all your freight accounting expenses or transactions. It also helps you apply the correct tax rate to transactions and follow tax compliance.

Keeping track of your freight expense account helps you optimize your budget for transport activities. Even so, you should also understand the factors that can impact your freight charges.

Read on to find out.

Multiple factors can affect your business’s freight costs, including:

1. Mode of Transportation

The types of transportation (truck, plane, boat, etc.) and their routes (air, sea, cross-country) can heavily influence the costs shippers will incur. 

Plus, the delivery expense increases when using multimodal shipping, leading to a higher shipping charge. 

2. Weight of Cargo

Heavier consignment loads are bound to cost more than lighter packages. 
Why?

Because it takes more energy to transport them, and larger freight also takes up more space.

3. Fuel Costs

Fluctuating fuel prices can impact your company’s freight costs.

All forms of transportation depend on the fuel cost, so the final fee charged to the client also needs to factor in the fuel prices. 

When the fuel price is low, consumers will benefit from the low prices. But if the fuel prices skyrocket, the consumer would also cover the additional increase since the delivery expense increases.

4. Demand for Freight

Freight demands can also go up and down, depending on the season (global holidays, Black Friday preparations, etc.). 

If, during that month, the demand for freight services increases, the costs would also rise. On the other hand, less demand would mean a lower price. 

That’s because a higher number of goods would take up more space during transport, and more fleets would need to be sent out. The competition for the limited shipping space is high, so certain freight companies would increase the price for more income.

5. Emerging Events

Events like natural disasters, terror attacks, or anything that would make freight transporting harder would also increase the freight cost. 

Why?

Freight couriers might take longer routes to avoid these places for the sake of traveling and delivering the merchandise safely. Sometimes it could also lead to them hiring extra security and getting higher insurance premiums. Which is why the shipping cost would increase.

6. Government Regulations

Taxes, transportation laws, government regulations, and shipping terms could also affect the total freight charge. 

Plus, shipping companies may raise the freight costs to cover the money spent on taxes and other expected losses. 

Now, there are also other issues that a freight forwarder should keep an eye on when maintaining a freight account.

Let’s see what they are.

The following are aspects that challenge accurate freight expense account management: 

• Tracking Carrier Charges: Freight forwarders deal with numerous carriers, and sometimes, one shipment could need five to six modes of transport to reach its destination. So, you need to be wary of documentation or invoice errors that could affect the accuracy of your freight accounting records.

• Track Shipment Costs on a Granular Level: Freight accounting needs to track every freight charge (like freight in and out, transportation costs, etc.), taxes, and other important payments. If not done properly, the freight account records would miss important details.

• SKU (Stock Keeping Unit) Proliferation: SKU proliferation means that certain merchandise is increasing in sales, or the seller is reducing merchandise inventory by selling off most of their stock. But for freight forwarders, it would also mean more paperwork and complicate current, individual, or collective orders.

• Takes Up Time and Energy: Manually entering and auditing your financial data could burn out your accounting team. Manual accounting also gets trickier when your business deals with multiple clients and shippers along the supply chain.

• Prone to Human Errors: Freight accounting is prone to basic mistakes and data errors. It gets worse if the original freight invoice is already wrong, making the subsequent documents void. This can lead to inaccurate shipping charges and possibly ruin business relationships.

How do you overcome these challenges?

Let’s find out. 

Certain best practices can streamline and optimize your company's freight or financial accounting. They include:

• System Integrations: Using freight accounting software that integrates with other forwarding systems can help simplify your workflow.
  
  For example, Shipthis is a powerful freight forwarding software that lets you integrate banking, productivity management, and other software via APIs. This helps optimize your team’s workflow.

• Real-time Tracking: Live notifications and updates make tracking freight expenses easier for your shipping company. You can also easily identify sudden cost changes, such as chargebacks, and counteract the delivery expense by managing your cash flow better.

• Utilize Machine Learning: Using AI in your freight accounting process can help you detect unusual expense and cash flow patterns and prevent unnecessary freight charges. It can also automatically generate finance reports to reduce costs and improve revenue for your business.

• Outsourcing: Hiring a freight accounting team or specialist can aid your financial management as these professionals will focus on managing your freight accounting tasks. Your financial team can then focus on other important tasks.

Freight accounting is essential for all freight forwarding and shipping providers, as it records all freight-specific expenses. You would no longer need to deal with a mixed heap of finance documents for your freight forwarding transactions.

Looking for the perfect freight accounting software to streamline your business financials?
Give ShipThis a try!

ShipThis is a freight forwarding software that simplifies freight accounting while providing insights into your financial processes and operations. It also offers advanced integrations, automated document management, and other robust features.

Contact us today to request a demo, and we’ll be more than happy to give you a first-hand tour of the benefits of freight accounting!