Gene Gander, Vice President of Business Development, WiseTech Global underlines the importance of using an integrated approach to accounting in the logistics business.
The benefits of operating with an ERP system are well understood throughout the logistics industry. ERP software integrates and coordinates processes across a whole operation, facilitating strategic planning and simplifying day-to-day management with both time and cost gains. However, there’s still one vital business process that’s too often left out of the integrated approach, i.e., accounting.
Businesses may choose to omit accounting as part of their integrated ERP logistics solution for many reasons. For some, the structure of their operation might dictate the need for an external accounting system that isn’t integrated with their wider logistics ERP. For instance, a logistics operation that operates as a department (a non-separate legal entity) of a much larger organisation may require accounting and finance to be centralised across the whole business including the logistics operations. Two separate systems would be unmanageable and so the logistics side of accounting is integrated into the whole.
The second instance is when the logistics operation is a separate legal entity of a much larger conglomerate. Although accounting isn’t centralised across legal entities, financial reporting is; in this case, the accounts payable and receivable can be managed in the logistics ERP solution from which the general ledger account can be uploaded and integrated into the wider accounting system.
In these situations, using an external accounting system makes sense. What doesn’t make sense and is all too common, is a business using an external accounting system because of the fear of change and complacency with a system that’s been in use for years.
Many logistics businesses still use external ‘off-the-shelf’ accounting systems simply because the package is familiar to the accounting team through their previous non-logistics-based roles; it may be a brand recognisable to the man on the street; and it might do its job perfectly well as a standalone product. Standalone products, however, will not integrate accounting with the business’ wider strategic goals; won’t give an insight into business practices; and won’t improve the productivity, visibility and accountability of the business’ operations.
Usually, an external accounting system accounts the monetary aspects of business transactions providing only a summary, not the entire story. An external accounting system can’t see what’s going on in the backend of the business. With integrated accounting, one can gain operational control, credit control, limits, invoice and payment statuses as well as the security that the accounts are tallying with the real-world operations at the end of the day.
On top of this functionality, integrated accounting also wins out when it comes to productivity. It eliminates the need to double key information across multiple systems, improving the speed of communication across the business while minimising the chance of mistakes. Integration also gives the business high levels of visibility so transactional information can be accessed across an operation in real-time. In a world where businesses are squeezed on operating margins, these small but significant improvements soon add up to make a big difference to operations.
An external accounting system may work well for many businesses across many industries. However, a logistics business should use an accounting system that’s tailored to fit the industry. Logistics is an industry that breaks borders and crosses compliance regulations across the globe, making accounting a taxing proposition.
A native accounting system packaged in an ERP geared specifically towards international logistics can aid integration with globally recognised industry systems (CASS, HRMC etc.), international compliance, foreign currency management and contra settlements between agents.
To help future-proof a business, a dedicated logistics ERP is also more likely to react to industry developments. This means that its integrated accounting system will receive updates to ensure its logistics-business users can stay up to date with the latest compliance regulations.
It’s all about using the right tool for the right job. Logistics providers don’t just move and manage freight; they also move information and money. Just as the right machinery is used to move physical goods, the right software platform should be used to move finances and valuable data. For logistics businesses wanting to make money more manageable, the benefits of an integrated accounting system soon add up. Using anything else will only mean short-changing the business with costly consequences.