Guide to Accounting for Logistics and Transportation Companies

  • September 24, 2021
  • OHI

Transportation and logistics companies play a major role in everyday commerce by moving goods from one place to another. From procurement of raw materials to the final delivery of packaged goods to the end consumer, it acts as an important link between the customer and the manufacturer. The importance of transportation and logistics companies has further increased with the advent of global e-commerce. People today rely on the online purchase of goods that require delivery to the customer’s desired address.  Keeping a track of these purchases, availing the services of accounting for a logistics company is incredibly important.

Accounting for Logistics Companies

Traditionally, people used to visit the shops frequently to make a purchase, which has changed over the past decade, giving room for logistics companies to prosper. The increase in demand for logistics services has made the operation and accounting process a little complex to manage. These accounting and operation challenges can drastically impact a logistics company’s earnings and bottom line. One of the major factors that lead to this is the uncertainty in operational costs. In addition to this, the oil price and shipping rate fluctuations can also contribute to losses if not managed properly. Accounting in Logistics is certainly complex, however it is a crucial process that needs to be followed for the proper running of the business. 

Let’s take a quick look into best practices to follow for effectively managing finance and accounts in logistics.

1. Regular Profitability Analysis

There are numerous variable costs in the logistics business that fluctuate quite often and can lead to major losses for the companies. Regular profitability analysis is a must for businesses operating in the logistics and transportation segment. This helps to bring more transparency into the accounting for logistics companies. To measure the actual profits, one needs to monitor all the fluctuating costs taken into consideration carefully. Since these costs are subject to frequent change, they will also fluctuate the profitability of the business. This kind of analysis is crucial in the process of finance and accounting in logistics.

2. Use Updated Accounting Software

Using updated logistics accounting software can help you produce data that are highly accurate and contains no errors. Good accounting software can reduce many manual interventions and automate many accounting-related tasks that require precision and good accuracy. Many businesses still rely on outdated logistics accounting software which is not capable enough to meet the needs of the modern business. In the digital era, companies have to deal with a large volume of data that can be quite overwhelming for old accounting software to process and produce quality output. Modern-age cloud-based accounting software offers a wide range of features, including business intelligence and AI, useful for processing a large amount of financial and accounting data.  It is important for logistics businesses with a large volume of product, logistics in accounting is very important. 

3. Financial Forecasting and Budgeting

Financial forecasting and budgeting play a crucial role in creating a sustainable business. Financial forecasting can be explained as the process of predicting the performance of a business in the near and distant future. It takes into account different variables that might impact the overall performance of a business. Usually, the financial forecasts are related to income statements and other financial statements that portray the actual financial health of the business. On the other hand, the budget is all about predicting future expenses, income streams and allocating funds to various activities based on the predictions. Good accounts are crucial for proper forecasting, as if done incorrectly, the forecasted data may turn out incorrect. This might lead the organization astray. 

4. Produce Accounts Every Month

For staying financially prudent, transportation and logistics companies should produce accounts monthly at the very least. This includes preparing cash flow statements, income statements, and making financial forecasts. Since the transaction volumes for logistics companies are quite high, they need to stay on top of it to reduce the financial risks and manage the finances effectively. It is important because numerous variable costs are associated with the logistics operations, including shipping charges, oil prices, etc. Showcasing the correct accounts on a monthly basis can go a long way in protecting you from the various problems that may arise in the functioning of the business. It can warn you of areas where money is being lost, so you can take precautions and are not blindsided by them.

5. Follow the International Financial Reporting Standards (IFRS)

The IFRS are accounting standards that are set by the International Accounting Standards Boards to keep a uniform set of data that can be compared and concluded easily. Accounting in the transportation Industry is important due to the many standards and regulations that need to be followed. The board advises companies on how they should prepare their accounting statements. It has details about how every element in the financial statements should be treated. It also guides how companies should disclose financial statements in a way that is accurate, fair, and easily comparable. It can be understood as the mandatory best practices to follow while creating the books of accounts. Since many logistics companies operate internationally, they have to follow the IFRS instead of the domestic accounting standards that might differ. 

6. Follow the Local Legislation

Businesses in the transportation and logistics domain must always follow the relevant and applicable local regulations. It is important to be aware of the local laws and guidelines set by the authorities and adhere to the same. This can also help companies to avoid any legal or financial penalties. Seeking legal guidance is also important in case there is a conflict in the guidelines.  Accounting for a logistics company is incredibly crucial for the fact that local regulations can be incredibly stringent in making this process relevant. 

In a Nutshell

These were some of the important tips that businesses in the logistics and transportation segment must follow. Since there are many fluctuating variable costs, it is all the more important for these companies to stay on top of their accounting game. Using reliable cloud-based accounting software can be a game-changer for logistics businesses.

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