Every logistics business owner knows how difficult it is to be on top of their business’ finances. For example, fluctuations in oil prices can significantly affect the profit margins of your freight operations.
To make things worse, logistics businesses are under a lot of pressure from consumers to keep up with their expedited delivery expectations. Ever since the pandemic has accelerated the volume of online shopping, the demand for delivering goods within short time frames has increased equally.
According to a study by Jupiter Research, the value of global e-commerce payment transactions is predicted to surpass $7.5 trillion by 2026 at a whopping 55% growth rate. This, in turn, has resulted in a steep rise in the “next-day delivery” as well as “same-day delivery” demands.
And while there are certain best accounting practices you can follow to maximize your profile margins and manage your logistics business accounts more efficiently. Yet, we have observed first-hand that the majority of logistics business owners simply disregard them, and complain later when their finances take a critical hit.
If you are a logistics business owner looking for ways to streamline your accounts, you have come to the right place. Here, we have shared seven best accounting practices for you to follow to manage your accounts effectively.
The 7 Best Practices for Managing Your Logistics Business’ Accounts Effectively
The increasing demand for expedited delivery is creating inevitable challenges for logistics businesses that are ultimately affecting their finances. Fortunately, these financial challenges can be easily solved by adopting the following seven best accounting practices:
1. Financial Forecasting and Budgeting
Financial forecasting and budgeting play a vital role in improving the financial health of a business.
For the uninitiated, financial forecasting is the process of predicting a business’ performance in the future. It involves considering different factors that ultimately affect the overall financial performance of a business.
In general, financial forecasting usually includes analyzing income statements and other financial statements that reveal the actual financial health of a business.
Budgeting, on the other hand, is the process of predicting the future income streams and expenses and allocating the appropriate amounts of funds to each aspect of a business based on the financial forecasting report.
2. Produce Accounts Every Month
To maintain the financial health of your logistics business, you must produce accounts once every month. Part of the reason why it’s important is that logistics businesses tend to receive high volumes of transactions.
On top of that, there are numerous costs associated with each transaction such as operational costs, shipping charges, oil prices, and so on.
These factors make it necessary to stay on top of your finances every month to eliminate any probable risks and manage your accounts more effectively.
3. Recognize Earnings After Control is Transferred to Customers
Many logistics business owners make the mistake of calculating earnings as soon as an order arrives. But since every logistics order involves considerable costs, it only makes sense to recognize earnings only after the control is transferred to the customers.
In other terms, logistics business owners should only recognize earnings once the appropriate criteria have been met as per the terms of the contract.
To illustrate, imagine you run a logistics business that offers international courier services. In this case, the correct way to recognize the earnings is only after you’ve deducted the operational costs and the customer has received their goods (i.e., upon completion of the delivery).
4. Follow IFRS (International Financial Reporting Standards)
IFRS are globally-recognized accounting standards that are established by the International Accounting Standards Board (IASB). These standards provide business owners with guidance on how to prepare and disclose their financial statements in a particular format.
The IFRS follows a principle-based approach, which is a globally-accepted framework and is recognized as the best practice. As a matter of fact, following these standards are particularly crucial for logistics businesses that operate internationally and conduct cross-border transactions.
The increasing demand for expedited delivery is creating inevitable challenges for logistics businesses that are ultimately affecting their finances.
5. Comply with Local Legislation
Logistics businesses should not only comply with IFRS, but also with any local legislations that apply to their operations. For example, if you provide logistics services internationally, you must be aware of and comply with relevant legislation in all countries where you operate.
Put it simply, it is vital to follow local laws and regulations set by the authorities and comply with them. Doing so will help you avoid any legal penalties and you’ll be able to conduct cross-border operations seamlessly.
6. Follow Up on Due Payments
If you offer a “pay later” option to your customers, it is best practice to maintain comprehensive records of the same. Maintaining a record of due payments will remind you to take follow-ups regularly and keep a tab on customers who are late for clearing their dues.
Remember, late payments can affect the financial health of your business and even threaten its very survival.
7. Use a Modern Accounting Software
Using modern accounting software can help logistics businesses to provide highly-accurate data and prevent financial errors.
More importantly, a modern and reliable accounting software can help to minimize unnecessary manual interventions and automate repetitive accounting tasks that require complete accuracy.
Unfortunately, many logistics businesses still rely on outdated accounting software. The main problem with sticking with an outdated accounting software is that it increases the complexity of managing accounts effectively.
Since most logistics businesses deal with a vast amount of data, managing them efficiently can become a bit overwhelming for an outdated accounting software.
On the flip side, modern accounting software comes with a plethora of features like BI (business intelligence) and AI (artificial intelligence) among other standard features. As a result, these features help logistics businesses to automate certain tasks and manage the overall accounts more effectively.
If you run a logistics business, now is the perfect time to implement best accounting practices. They’ll not only help you streamline the accounts management of your logistics business but also help you stay on top of your accounting game.
Nicholas Woodward is Country Manager at PACK & SEND, a leading and respected brand in eCommerce, logistics, and freight delivery solutions. With more than 15 years of experience in the logistics, eCommerce, retail, and franchise industries. Nicholas has taught leadership and expertise across strategic planning, leadership, eCommerce, B2C logistics, and organisational performance & growth. Connect with Nicholas on LinkedIn.
Like what you're reading?
Subscribe to our FREE newsletter and we'll deliver content like this directly to your inbox.