Freight Accounting: Optimize Financial Decisions with a Built-in TMS Solution

Delivering assets to your customers is essential, but ensuring profitability can be challenging. How do you track expenses accurately and make informed financial decisions? 

This is where freight accounting comes in. Managing freight accounting within a Transportation Management System (TMS) can streamline your operations, enhance efficiency, and improve your bottom line. 

In this article, we’ll explore the strategic benefits of freight accounting in a TMS and share best practices to help carriers optimize their financial performance.

Introduction to Freight Accounting

Freight accounting is the process of monitoring and managing the expenses associated with moving goods from one location to another. It plays a crucial role in understanding the costs of transporting products, whether moving from a manufacturing warehouse to a retail store, directly to a customer, or between other points.

Modern shipping is complex, involving factors like the original and final destinations, the types of equipment needed, and the various expenses that are involved. Freight accounting helps you keep track of these expenses, ensuring that every cost related to sending goods is accurately recorded. This includes transportation costs, fuel costs, tolls, maintenance, and other payments related to shipping and transport management.

Depending on the agreement between the sending and receiving parties, freight costs may be paid either before or after the items are shipped. Recording these costs accurately is crucial to ensure profitability and effective financial management.

Understanding Freight Costs

Various elements contribute to the total expense of transporting goods. Understanding these elements helps you manage and optimize your shipping budget. Here are some critical components of freight costs:

  • Equipment Type: The type of equipment required for transportation (e.g., flatbed, refrigerated truck, dry van) significantly impacts costs. Specialized equipment, like temperature-controlled units, generally incurs higher expenses due to specific handling and maintenance.
  • Weight of Cargo: Heavier loads cost more due to increased fuel needs and wear on vehicles, and they take up more space, reducing the number of shipments per transport.
  • Fuel Costs: Fluctuations in fuel prices impact freight costs, with higher prices leading to increased shipping expenses and lower prices, resulting in cost savings.
  • Demand for Freight: Freight costs vary with demand and are influenced by seasons, economic conditions, and events; high demand increases prices, while low demand decreases them.
  • Risk Factors: Transporting goods through hazardous areas or handling dangerous materials increases costs due to the need for additional security measures, higher insurance premiums, and potential delays.
  • Government Regulations: Transportation regulations — such as driving hour limits, emission taxes, and cargo volume restrictions — increase operational expenses and affect freight costs.
  • Freight In Costs: These costs are incurred when a company receives goods from suppliers. For carriers, understanding these costs helps in pricing and service offerings.
  • Freight Out Costs: These costs are incurred when a company ships goods to customers. Carriers must manage these costs to ensure competitive pricing and maintain profitability.

Freight On Board (FOB) Explained

Freight on board, also known as FOB, specifies which party — buyer or seller — covers the shipping costs and when ownership of the goods officially transfers from the seller to the buyer. There are two types of FOB:

FOB Origin (or FOB Shipping Point):

  • The buyer assumes responsibility and ownership once the goods leave the seller’s premises.
  • The buyer is responsible for shipping costs and the risk during transit.

FOB Destination:

  • The seller retains ownership and responsibility for the goods until they reach the buyer’s location.
  • The seller covers the shipping costs and bears the risk during transit.

Knowing the FOB terms helps carriers plan and manage transportation, as it affects who bills for the service and when.

Strategic Benefits of Freight Accounting in a TMS

While stand-alone accounting programs might integrate with other systems, managing your freight accounting through your TMS can provide several strategic advantages to improve your business operations. Here are some key advantages of a built-in accounting solution:

Enhanced fleet management

Freight accounting plays a crucial role in fleet management by tracking and integrating freight costs into your operational expenses. This holistic view helps you make informed decisions about fleet utilization, maintenance schedules, and route optimization. Effective fleet management ensures efficient use of your fleet, reduces downtime, and improves profitability.

Comprehensive financial view

Using multiple tools can make it difficult to view your finances efficiently. However, with a unified system, you maintain consistent data flow across accounting, dispatching, and fleet management. Consolidating your financial operations into a single platform reduces errors, improves data integrity, and enables data-driven decisions, leading to better financial and operational performance.

Effortless invoicing

Without proper care, invoicing can become a nightmare, resulting in payment delays, manual errors, and a lack of real-time tracking. These issues often cause cash flow challenges and increase administrative burdens. Built-in carrier accounting features help you send invoices electronically, track their status in real time, and get paid faster. Automating your invoicing improves accuracy, reduces errors, and enhances customer satisfaction through timely and efficient billing practices.

Accelerated cash flow

Freight accounting features such as automated invoicing, invoice document capture (including Bill of Lading (BOL) and Proof of Delivery (POD)), and invoice audits streamline and automate processes. These features accelerate cash flows, ultimately improving your business’s financial health.

Powerful financial reporting

A built-in accounting suite in your TMS provides access to critical data that can offer actionable insights. Advanced reporting and analytics can help you zero in on key areas and go past the basic numbers to uncover true costs, optimize profitability, and more. Built-in reports streamline accounting workflows, and easy export facilitates collaboration on strategic decisions.

Best Practices in Freight Accounting

Implementing best practices in freight accounting can streamline your operations and improve accuracy. Here are key strategies to ensure efficient and effective freight accounting processes.

Implement standardized procedures

Standardizing your freight accounting procedures ensures consistency and accuracy across your operations. Develop clear guidelines for data entry, invoice processing, and expense reporting. This consistency minimizes errors and streamlines training for new team members, making maintaining high standards in your accounting practices easier.

Use built-in accounting tools

Rather than dealing with separate accounting software that requires integration and data extraction, opt for a TMS with a built-in accounting tool. Conducting freight accounting in a TMS means you don’t need additional accounting software like QuickBooks. With everything in one system, you can efficiently monitor freight costs, identify potential issues, and make informed decisions. Choosing a TMS with integrated accounting software ensures a comprehensive, efficient, and cost-effective approach to managing your freight accounting needs.

Utilize real-time tracking for expense management

Using real-time tracking features can improve your expense management. Real-time monitoring provides instant feedback on expenses, allowing you to track expenses accurately, manage chargebacks, and react to sudden cost changes. Personalized dashboards help you track Key Performance Indicators (KPIs) in real time and identify areas for improvement.

Regularly review and reconcile accounts

Regularly reviewing and reconciling your expenses helps identify discrepancies early and maintain accurate records. Schedule routine audits to verify that all transactions are recorded correctly and that your expense reports match your actual costs. This proactive approach prevents minor errors from becoming significant issues and ensures the reliability of your financial data.

Leverage data analytics for decision making

Utilize data analytics and reporting to gain insights into your expenses and make informed decisions. Analyzing patterns and trends in your trucking costs can help you identify areas for cost savings and efficiency improvements. By leveraging data, you can make strategic decisions that enhance your overall financial performance and operational efficiency.

Advancing Freight Accounting With PCS TMS

Efficient freight accounting is essential for carriers to maintain profitability and streamline operations. Using a TMS with a built-in accounting tool, such as PCS TMS, you can seamlessly manage financial processes, from automated data entry and tax form generation to simplified driver payments and comprehensive financial reporting. This integrated approach not only reduces errors and saves time but also provides valuable insights that drive informed decision-making. 

With PCS TMS’s cloud-based platform, you gain the flexibility and control needed to manage your finances from anywhere, ensuring a more agile and responsive business operation. Enhance your freight accounting with PCS TMS’s robust tools. Learn more about PCS TMS for Carriers or request a demo to see it in action.

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