Getting Paid: Why AR Matters in your TMS

Figuring out the right TMS for your business typically boils down to your vendor’s data structure, which affects every facet of the software. One way to know whether the TMS will work for your needs is to look at its accounts receivable capabilities (AR). This is where the data structure really comes to light.

What’s so important about AR?

accounts receivable capabilitiesThink of an AR record as a sell-side load. While a load is essentially an intermediate point between an order and a carrier freight bill on the buy-side, an AR record is the intermediary between an order and a customer invoice. Both buy-side and sell-side charges are allocated back to the order. An AR record is the primary entity against which sell-side rating occurs for the purpose of invoicing customers.

The flexibility with which a TMS allows you to create and manage AR records drives how fast, easily and accurately you get paid. But the truth is that many TMS’ AR record parameters won’t match up with the realities of your business, so taking a hard look at them will quickly give you an idea of whether you’re considering the right TMS.

Precise rating and billing by order, shipment or load

Determine exactly how – not just whether – the TMS enables you to rate and invoice in multiple ways. For any given load and client, your TMS should be able to create an AR record at the order level, shipment level or load level.

  • Order level: Each order on a load will be assigned to its own AR record. Each AR record is rated as if the order was shipped independently (except cost plus).
  • Shipment: Each combination of client, bill-to location, origin and destination on a load will be assigned to its own AR record. The AR is rated as a consolidated shipment containing all of the orders that share the common attribute.
  • Load: Each combination of client and bill-to location on a load will be assigned to its own AR record. The AR record will then be rated as a consolidated load (including multi-stops).

The existence of the sell-side load allows you the flexibility to consolidate multiple clients on a load while still billing each client independently at the load, shipment or order level.

Let’s say you have a load originating out of Dallas and it has four different stops:

At Stop #1, you have to bill two different divisions within the same company. At Stop #3, there’s an order for a different customer entirely. Some orders will need to be billed separately to different parties, and so require different ARs.

A TMS should allow you to bill several different ways in this situation: If you choose ordered-based invoicing, you will have six AR records (one for each of your six orders associated with the load). If your TMS allows for shipment-based invoicing, you will still receive six ARs because the bill-to location and/or client are different on some of the orders – so they will be split into their own AR records. For load-based ARs, you would receive three ARs: One for each combination of client and bill-to location.

Rating and allocation

Once an AR is created, the next step is rating and allocation. AR records can be rated in multiple ways:

  • Through a rate action that will call the rating engine for sell-side contract rates or cost-plus mark-up rates, then update AR charges accordingly.
  • Manual entry or adjustment of AR charges.
  • For orders that are pre-rated such as prepaid “cash” transacions or binding quotes, flags on the order designate that the pre-rated charges should be used on the AR.

Once rated, the AR record’s charges are allocated back to the order associated with it. The allocation process is used to support both the buy and sell-side rating processes. It determines how the calculated buy/sell charges should be allocated to and from the orders associated with the ARs, and therefore determines a load’s profitability and margin. A TMS should give you multiple options for allocations and run them automatically as needed, such as when a load cost changes or order charges change.

By giving you several allocation options – including capabilities for determining shared savings for any customer programs – a TMS gives you maximum power in determining the real-time profitability of your loads and flexibility in how you invoice. This is critical to managing the logistics of today’s transportation industry and taking advantage of more complex (but profitable) distribution methods, including pool distribution.

AR matters

The capabilities of a TMS matter little if you can’t bill your customers according to the realities of your business. By examining the AR capabilities of a TMS, you can determine not only what the software is capable of but how it will help you solve your challenges efficiently and profitably.

Dawn Salvucci-Favier

Dawn Salvucci-Favier is responsible for product lifecycle and strategy management and brings more than 22 years of transportation management industry knowledge to 3GTMS. Dawn joined 3GTMS from RedPrairie where she was senior vice president and general manager for RedPrairie On-Demand, and was most recently vice president of global strategy developing the company’s global go-to-market strategy for their transportation management solution. Prior to RedPrairie, Dawn was president & COO at Shippers Commonwealth Llc, where she had full P&L management responsibilities for the $6 million, value-added service provider of logistics solutions. She was previously at JDA where her roles included vice president of transportation and logistics solutions; and Manugistcs Inc. Dawn brings extensive 3PL and shipper experience having directed logistics services for NFI Interactive Logistics, and working within the transportation management function at Staples, Inc. and TJ Maxx/The Marmaxx Group.

Comments

  1. What about the Shipper side of this issue? AP counts as a primary consideration for our decisions on TMS options, if we are aware. That side of the business should be contractual in the system.
    1. Quote – binding on either or both parties
    2. Book – carrier commitment
    3. Ship – billing initiated
    4. Pay – application of contractual terms both implicit and explicit to the transaction.

    Rate verification and reporting is a key feature for the shipper. “Extra” charges and unquoted expenses are often cited on freight invoices. Audit processes may catch them, but statistically I understand they are often paid without review. A TMS could readily match AP to payment functions (however managed – in-house or outside auditor). Just avoiding delays, arguments and lengthy exchange of documentation would be a good thing.

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