Billing and reconciliation are a major source of frustration for 3PLs and their customers alike. Increasing competition, rising costs of borrowing and the pressure to optimize margin are forcing both parties to place an increased emphasis on streamlining cash flow and improving visibility into major cost and revenue drivers. As a 3PL, here are a few steps that you can take to improve your billing process and set yourself up for a successful and profitable 2024.
- Negotiate custom, but easily auditable contracts with customers
3PLs run into challenges when they have extremely complex custom contracts for each one of their clients. Custom contracts often lead to a lot of work to eventually create inaccurate invoices (due to the numerous steps required to process an invoice), and countless questions asked by the customer before invoices are finally settled late. While custom contracts should be encouraged as they help optimize margin, they should be done so in steps that are easily traceable and auditable for future analysis (to aid with re-pricing contracts, or reconciling revenue).
Instead of providing custom rate sheets for shipping, consider applying a fixed dollar or percentage markup over certain zone-weight classes, carriers, or services. Charge for storage based on space occupied and calculate it based on item inventory levels, instead of a per-pallet charge (which introduces complexities such as pallet tracking, recording stackability, etc.)
- Prioritize interoperability while choosing software
Several Warehouse or Order Management Systems used by 3PLs make it very difficult to export operational activity data. This prevents 3PLs from spot-checking, let alone automating the analysis of financials and makes it a very manual and laborious process for them. For example, 3PLs seeking to understand the total cost of fulfillment per order may have to download separate reports to fetch the shipment list, the list of items contained in each shipment, and the name of the warehouse worker, pick-pack data by warehouse worker, and the cost per hour for each worker. 3PLs then have to manage and work on analyzing these reports in spreadsheets, which makes keeping calculations accurate and a log of historical analysis a lot harder.
Consider choosing software that allows you to easily customize reports and export data through APIs, connections to BI tools, or scheduled emails.
- Align cost centers with revenue centers
By implementing margin-based or unit-based pricing, 3PLs are able to capture incremental revenue for each unit of service performed. Not only does it become easier to reconcile revenue with costs, but it also becomes a lot easier to calculate margin for each line of service.
3PLs should also consider charging their customers on different schedules for different services. For example, if carrier bill payments are due on net 14 terms, invoice clients for their shipping and other package-related charges on a weekly basis. Continue charging them monthly for storage and other services of lower velocity. By doing so, the 3PL will be able to reduce reliance on debt or cash reserves to settle bills, and improve liquidity. Consider offering your customers more favorable payment terms to encourage faster settlement of bills, or offer the ability to pay bills in installments, promoting earlier bill settlement.
- Hold frequent financial audits and customer business reviews
It is very important to perform periodic financial analysis and re-pricing of contracts with your customers and suppliers. Don’t wait until peak season to renegotiate rates with your carriers, or until you’ve already incurred significant losses on packaging orders for a customer shipping bulkier than expected goods. Don’t ignore reviewing carrier bills just because they’re difficult to analyze because they may contain significant additional charges that were not accounted for on the label created by your OMS or WMS.
If your current system setup allows for it, consider building dashboards that give you daily updates on key financial and operational metrics, so that you don’t have to rely on manual analyses to stay up to date with business fundamentals.
Following these steps, 3PLs will no longer have to compromise on profitability to earn competitive business and grow faster. Taking these steps will lead to the creation of a more accurate, streamlined and automated billing system that also offers actionable insights to further improve profitability and customer success. You can invest significant time and resources into building and maintaining these billing processes internally, or use a fully automated and centralized invoicing and reconciliation system like Rails to achieve this result.
Users of Rails have implemented shorter billing cycles without any extra effort to improve cash flow, automatically identified 6-figure discrepancies in applications of carrier rates, and have become more profitable by designing highly custom but automated billing agreements to meet the needs of each client. Rails lives on top of your existing systems, and is easy to connect to and configure within days without any IT or engineering resources required. Connect today to see how 3PLs of all sizes are using Rails to streamline cash flow and improve profitability.