Transportation plays in integral part in generating financial information that becomes part of the “cost of goods sold” section of your company’s financial statements. To be in compliance with Sarbanes-Oxley Act rules, companies are required to represent that their financial information fairly depicts the company’s financial position. This includes the basic practice of recording transportation expense in the period when the expense incurred.
Where the cost center and general ledger numbers appear on the freight invoice or bill of lading, the charges can be distributed based on the weight of various SKUs or products on the same invoice. If it cannot be found on the bill, it can be derived based on other data elements that are found on the bill, such as origin, mode or type of shipment (warehouse transfer versus direct-to-customer). Once this rules-based, table-driven process is completed and all cost centers and general ledger codes for invoices received have been assigned, the information is then fed electronically to your enterprise resource planning system to record the expense incurred based on the company’s monthly financial calendar.
Strictly speaking, it does not matter whether the invoice has been received or not. Once you have tendered a shipment, you incur an obligation to pay for the associated freight charges that should be recorded as an expense. To achieve this objective, many companies will create a file when a load is tendered. Sometimes referred to as a bill of lading file or a shipment authorization file, it is matched electronically to freight bills as they are received. Those records in the file that go unmatched at the end of the period have to be accrued or accounted for. They are rated to determine the anticipated cost of the freight charges for shipments tendered but not yet billed. This is typically done by division, cost center and general ledger.
There are other conditions that need to be accrued. These include freight bills in process but not paid yet. Companies also have to account for bills that are aging to terms; that is, invoices where the shipment has occurred but payment is not yet due based on the negotiated terms with your carriers.
Many companies seek to determine the total landed cost for a product. This helps them to determine if they are sourcing their materials effectively and brings into focus the total transportation expense incurred. This can be done by capturing a unique identifier for a given product such as a sales order number and associated transportation expense. The freight cost for each mode and leg are proportionately aggregated by product (sales order number) to determine the landed cost.
Data management is critical to accurate transportation expense reporting. Strong analytics start with clean, normalized (harmonized) data. However, gathering data from multiple sources presents a significant challenge since carriers may refer to the same service, accessorial or other shipment attributes in different ways. You need processes in place to properly identify addresses/locations, service levels, currencies, modes and other shipment elements to account for transportation expense.
Harold Friedman is senior vice president for global corporate development at Data2logistics, with more than four decades of experience in the transportation industry. His company is a transportation logistics accounting and billing firm with offices in Salt Lake City; Mission, Kansas; Fort Meyers, Florida; and The Netherlands.