As a shipping company owner, freight accounting helps you keep track of the costs of sending goods from one place to another.
You can sometimes send a product from a warehouse where it’s made to the company’s warehouse that sells the product. You can also send the product from a manufacturing company to a store or directly to the customer.
Regardless of how you send your products, paying close attention to freight accounting is vital as it will help you know about all the costs involved. Freight accounting will also help you know how your business is doing.
How freight accounting is important to your business
Freight accounting breaks down the amount of money your business spends shipping and receiving different products.
Some of your company’s freight costs may be negotiable or changeable, which could help you save money, while others are fixed, and there is nothing you can do about it. Your accounting team needs to track freight costs accurately to find these areas.
If you have a full picture of how and where you spend money, it’s easier to develop ways to improve efficiency and cut costs.
Knowing the health of your business also gives you peace of mind as you know what you need to do to keep your business operational.
Freight accounting best practices
If you have a shipping company such as https://www.shipnetwork.com/ and freight accounting is a significant part of your business, there are several things you should do to have a great time and save your company as much money as possible. Some of these things include:
Have a separate shipping account
To avoid mixing things up, you should set up a separate shipping account that is easy to access and manage. You put in all the costs of sending goods to customers or other businesses here.
Play by the law
Also, it’s crucial to ensure that your company’s shipping and accounting practices align with all laws, such as tax and environmental laws. A good rule of thumb is to ensure that your business:
- Keeps accurate records of your money.
- Sends all the necessary paperwork to the government.
- Obtains any relevant permits.
- Maintains records in a safe place.
- Checks the records often.
- Implements controls to safeguard data.
- Stays up to date on all the rules in your city, state, and country
Prepare your accounts once a month
Cash flow statements, forecasts, and income statements should be made often, ideally at least once a month.
The reason for this is that as a logistics company, you have a lot of transactions, and it’s important to stay on top of them to keep the company’s finances in order and reduce risk.
Having up-to-date accounts will help you make better decisions and ensure you always have up-to-date information about how your business is doing.
Count your earnings only when the product reaches the customer.
You should only count money as income once all of the conditions in your contract with the customer have been met.
The contract will say what the shipping or transportation company needs to do to meet its obligations.
The related revenue should be counted either over time or at a certain point, depending on when control of the good or service is given to the intended recipient and what it is.
For example, a cruise ship should record revenue over time as the customer gets and uses the service.
A delivery company should count revenue when the customer receives the goods.
Follow the International Financial Reporting Standards (IFRS)
The International Accounting Standards Board puts out IFRS, which are accounting rules you should follow in your business.
The organization guides companies in making and sharing their financial statements in a way that is true, fair, and comparable to how other organizations worldwide do the same.
The standards are based on principles that provide a global framework that many see as the best way to do things.
The IFRS is critical for logistics and transportation companies because many work internationally and do business across borders.
A common set of accounting standards also makes it easier for investors to understand a company’s financial statements and spot investment opportunities.
Follow the laws in your area
As mentioned above, logistics companies should follow not only IFRS but also any local rules important to their business and how it works.
Logistics and transportation companies often work in more than one country. Because of this, you must know the laws in all the countries where you operate and the laws in the country where you file the annual reports.
Make use of modern accounting software.
Many businesses still use outdated accounting software that can’t meet their needs in the modern business world.
Companies are dealing with a growing amount of data that needs to be processed, recorded, and analyzed correctly so that it can be helpful to anyone who might use it.
Outdated accounting systems can only handle small amounts of data, making it hard to make good decisions and save time.
Newer accounting software that runs in the cloud has many valuable features, such as AI and business intelligence.
These more advanced systems can automate manual tasks, help people work together, and connect to other business systems to make them more efficient.
Cloud-based systems can benefit any logistics company dealing with a wide range of transactions and many moving parts.
While there are many companies you can get software programs from, each company is unique to the other.
A good rule of thumb is to take your time to research and find a reputable company with the software you are after. Working with a company specializing in software programs for shipping and logistics companies will even be better.
Besides the cost, support is another vital factor to consider when buying software. You want to get your software from a company you are sure will support you should there be a problem.
The last thing you want is to want to handle the accounting tasks, yet you can’t use the software because it’s faulty, and you can’t access the necessary support.
A good rule of thumb is to work with a company providing 24-hour support on its programs.