Freight Accruals: What Every Shipper Should Know

Unless a company has a dedicated accounting team for its logistics operations, a robust freight accrual process may seem out of reach. With hundreds or even thousands of freight invoices coming in every month on top of every other bill that needs to be paid, it can be enough of a challenge to ensure they’re processed at all, let alone that they’re accurate before being recorded. Does it really matter if the right rate is initially recorded, so long as that’s the rate that’s eventually paid?

Actually, it matters more than some shippers realize. Here’s why a fast and accurate freight accrual process is so critical, why so few companies have mastered it—and how to bridge the gap.

A timely freight accrual process creates visibility and delivers a competitive advantage.

The core benefit of a tight accrual process is the visibility it provides—allowing logistics managers to know precisely what their freight spend was within any given accounting period and make decisions accordingly.

Say a company receives invoices totaling $200 million for the first quarter of the year. Since some of the invoices contain errors that will eventually be caught and rectified, in actuality, freight spend for the quarter is only $190 million. But if it takes the accounting team two months to process and pay those invoices, the company will operate on the assumption that $200 million is coming out of the kitty—impacting the logistics team’s funds for the next quarter.

With a speedy accrual process, the logistics manager would know they had an extra $10 million to play with going into Q2. They’d also have a complete picture of current shipping costs. Since the cost of shipping impacts production costs, which in turn impact product pricing, this allows companies to price their products more dynamically, rapidly adjusting to shifts in the freight landscape to remain competitive—without negatively impacting profit margins.

The freight accrual process often falls short because different invoice formats aren’t accounted for

Since the freight accrual process can deliver so much value, why aren’t more companies using it to its full advantage?

The short answer is, it’s difficult. Really difficult.

Even for companies that have automation built into their freight audit and payment process to increase efficiency, the freight accrual process is often hindered by different file formats. Invoices that are sent electronically are no problem—but what about PDFs and paper invoices? In many cases, it can take a company up to two weeks to process these invoices because they need to be entered into the system manually, which also creates the opportunity for human error to creep in.

This makes an accurate and timely accrual process virtually impossible, creating yet more gaps in visibility.

Leave no gap unplugged.

At CTSI-Global, we foresaw this challenge. That’s why we built Optimal Character Recognition (OCR) technology into our industry-leading freight audit and payment solution. This allows us to rapidly convert any invoice—even a handwritten note—into an electronic format, meaning we can typically process and validate all invoices within one day of them entering our system.

With these capabilities, logistics managers can gain a picture of their freight spend that is as complete and up to date as possible. They’ll also have electronic versions of every invoice processed at their fingertips. So, even if a paper invoice was necessary (such as a government-stamped document), shippers won’t have to dig through their filing cabinets if they need to find it again later.

Embrace a freight accrual process that is quick, accurate, and painless. Contact CTSI-Global today to get started.

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