Suppliers selling to transportation and logistics companies face escalating collections costs due to the complexity and fragmentation inherent in the supply chain industry. With the global transportation and logistics market expected to reach $12.68 trillion by 2028, growing at a CAGR of 6.7% per year, transaction volumes and AR complexity are rising. Payment delays, disputes over freight charges, and the challenge of managing diverse client contracts all contribute to higher operational expenses in collections.
For finance controllers in businesses supplying this sector, addressing rising collections costs is critical to maintaining profitability and scalability. This article explores the root causes of these costs, evaluates current strategies, and offers solutions for building scalable, cost-efficient AR processes.
Factors that Drive Up Cost of Collections
1. Fragmented Payer Ecosystem
Transportation and logistics providers often rely on a layered system of brokers, carriers, and third-party logistics (3PL) providers. Each transaction may involve multiple stakeholders, leading to payment disputes and delays. According to McKinsey & Company, 45% of freight invoices require adjustments, creating inefficiencies in cash application.
2. Complex Contract Terms
Payment terms in the logistics industry vary widely, often influenced by volume commitments, route complexities, and penalties for late deliveries. This variability complicates invoice matching and collections. A PwC report indicates that inconsistent contract terms contribute to 18% of payment delays in supply chain transactions.
3. High Volume of Disputes
Disputes over freight rates, accessorial charges, and fuel surcharges are common. A study by Transport Topics found that 23% of payments in logistics involve disputes, prolonging collections cycles and increasing AR team workloads.
4. Global Operations and Currency Fluctuations
Many logistics providers operate across borders, introducing challenges related to currency conversions, tax compliance, and foreign exchange losses. These factors can lead to mismatched payments and delayed reconciliations.
Pros and Cons of Optimizing AR Processes Without Automation
Pros
- Lower Initial Costs: Process optimization relies on existing tools and infrastructure, minimizing new expenses.
- Improved Accuracy: Standardized workflows reduce common errors and improve reconciliation efficiency.
- Customized Solutions: Tailored processes can address unique industry requirements.
Cons
- Limited Scalability: Manual processes become unmanageable as transaction volumes grow.
- Increased Workload: Teams may spend significant time resolving disputes and matching payments manually.
- Delayed Cash Flow Insights: Manual tracking limits access to real-time data, affecting strategic decisions.
When to Consider Specialized AR Automation Software
While manual optimization can address immediate issues, specialized AR automation tools become essential when:
1. Transaction Volumes Overwhelm Existing Systems
Automation tools handle thousands of invoices monthly with minimal human intervention, reducing manual workloads. According to Gartner, automation reduces processing times by 50-70% in high-volume AR environments.
2. Diverse Payer Systems and Formats
Logistics companies frequently use varied payment methods, including ACH, wire transfers, and paper checks. Automation systems use AI/ML to reconcile payments across formats with 95%+ accuracy.
3. Prolonged Days Sales Outstanding (DSO)
Automated AR tools accelerate reconciliation, reducing DSO by 12-15 days and improving cash flow by 30% (Accenture).
Strategic Benefits of AR Automation
1. Cost Reduction in Collections
AR automation eliminates repetitive tasks such as invoice matching, payment reconciliation, and dispute tracking, significantly reducing the cost per transaction. For example, AI-powered tools like Growfin can automate remittance matching across formats such as EDI, ACH, and paper checks with 95%+ accuracy. This reduces labor costs while ensuring faster collections.
2. Accelerated Cash Flow
By resolving disputes and posting payments more quickly, automation reduces DSO. Growfin’s platform, specifically designed for complex supply chain ecosystems, natively integrates with ERPs like NetSuite (as a Built-for-NetSuite app) to provide real-time insights into overdue payments, AR aging, and cash flow trends. This improves cash flow by 25-30%, as reported by McKinsey & Company.
3. Enhanced Dispute Resolution Efficiency
Freight-related disputes often delay payments. Growfin enables suppliers to categorize disputes by type (e.g., rate discrepancies, service issues) and assign them for resolution using automated workflows. This approach has been shown to reduce dispute resolution times by up to 50%, enabling teams to recover payments faster and at lower costs.
4. Real-Time Visibility and Strategic Insights
Automation tools provide real-time dashboards showing collections performance, dispute resolution metrics, and customer payment trends. Growfin’s AI-powered platform helps finance controllers prioritize efforts, track progress, and identify high-risk accounts, enabling data-driven decision-making.
Growfin helps supply chain leaders like FourKites and Locus lower collection costs by automating tasks like remittance matching and dispute resolution with 95%+ accuracy. Its ERP-integrated platform accelerates cash flow by up to 30%, reduces dispute resolution time by 50%, and empowers teams with real-time insights for strategic decision-making.
In Summary
For suppliers to the supply chain industry, rising collections costs pose a significant challenge. While process optimization can yield short-term improvements, automation is the key to achieving sustainable cost reduction and scalability.
By adopting platforms like Growfin, suppliers can streamline collections, accelerate cash flow, and gain critical insights into their AR health. This proactive approach transforms collections from a cost center into a strategic advantage, ensuring suppliers remain competitive in an increasingly demanding and complex market.
