When profit margins are pressured, many call for reduced overheads, which results in a growing momentum for a logical and rationalized accounting process. Freight forwarders can now reap the benefits of increased administrative productivity and lower costs by simplifying how they transact with their trading partners around the world.

How can they achieve this? The answer is the advantages of netting clearing systems.

Every freight forwarder recognizes that their accounts receivable and accounts payable problems are compounded by operating under the weight of paper and across multiple time zones and currencies.

Netting is an automated inter-company clearing system designed to settle international payments and receipts between trading partners. These systems were originally, designed for use by banks to settle transactions but now forwarders have access to the same highly effective financial relationships via integrated netting.

Netting concentrates all payments and all receipts across the freight forwarder’s network into one cost-efficient transaction per month.

The administrative efforts in managing accounts receivable and accounts payable can be reduced by as much as 70 percent. Netting minimizes manual data entry and delivers total, real-time transparency from invoicing through to remittance. It then automates the posting of settled transactions and eliminates the time taken to record accounting and bank entries.

Collecting debts from overseas agents and offices in a timely manner has long been an issue for forwarders. The uncertainty of whether debts will be paid quickly becomes the uncertainty of whether cash flow will be available to pay trading partners.

Netting puts an end to the uncertainty. With netting, there is not only discipline, structure, and a timetable within AR and AP flows, there is also a lowering of financing costs.

Netting almost completely eliminates the high administrative costs and bank charges associated with processing numbers of low-value transactions in multiple currencies.

The certainty of cash flow means a reduction in the amount of working capital needed, which leads to a lower float. In turn, banks are more likely to provide competitive working capital financing.

Every international transaction carries foreign exchange risk with the potential devaluation of currency or revaluation of a currency for invoices that are owed. Few freight forwarders have the capacity to bring currency hedging specialists in-house. With foreign exchange dealings centralized and netted off, far fewer deals are required, and the larger, aggregated volumes attract much better rates.

For the first time, forwarders have visibility into the approval status of every invoice. Triggers even advise if invoices have not been approved within a defined timescale. Invoices are viewable online at any time with the real-time net due to be paid or received by netting partners.

Frustrated customers can use queries and alleged missing documentation as excuses for non- or late payment. The time taken to resolve these problems causes enormous disruption to operational staff with the correspondence and phone calls, the copying and re-sending of documents, and more; and it eats into the job’s profit margin as well.

Within a new system, transparency and automated dispute resolution mechanisms speed up the processing of non-approved invoices. A chat function is the first line of defense to quickly solve minor disputes. While significant issues and exceptions can be escalated within the system for expert and personalized service.

It’s common for large mismatches to occur in inter-company bookings and for billings to be wrong, mis-entered, or disputed. This leads to problems in reconciling the accounts, which in turn can lead to errors in the P&L statement and ultimately an incorrect balance sheet.

With inter-company billings eliminated from final group accounts once they balance out, the significant overhead of this administrative function is also eliminated in the process.

Mike Coney is vice president of business development Asia at WiseTech Global, a developer of cloud-based software solutions for the logistics industries.