3PL Billing Errors: your margin is leaking | Socius24
The Case of the Missing Margin: Why Ops and Finance don't agree
Pretty much every 3PL warehouse has experienced some version of the following conversation:
Operations says that last month went great. Woohoo! Throughput was up, the team hit their numbers, and everything went relatively smoothly.
But then, Finance added up the actual monthly income, and it bore absolutely no resemblance to what anyone was expecting. And that’s because, somewhere (between the work being completed and the money coming in) something changed, and it did so dramatically.
Upon closer inspection, there’s no one, single, spectacular error. Instead, there’s just been a slow but irritatingly persistent accumulation of small discrepancies between what the warehouse system recorded and what was ultimately invoiced. And by the time anyone goes looking for more detail, the trail has gone cold. That work happened weeks ago and there are fires that need to be put out TODAY.
There are lots of reasons why 3PL billing drifts out of step like this, and in our experience, the biggest culprits are usually rather more mundane, and more easily solvable, than you’d expect them to be.
Two truths?
In a lot of operations, the warehouse system knows one thing and the billing process knows another. The WMS dutifully records what physically happened: the goods that were received, where they were put away, and what was picked, packed, and then dispatched. And it makes a note of anything exciting that might have happened in the middle.
But the invoicing for that work is built by a separate process, quite often involving a spreadsheet of DOOM, sometimes involving someone’s memory of what the SLA contract says, and very frequently involving a manual step where the WMS data gets extracted out of one place and re-keyed into another.
The problem is that the minute that you’ve got two records of the same event, you’ve created an opportunity for them to disagree. So, quite often, they do:
- A storage charge that should’ve been started on the day that the stock arrived but only got entered into the system a few days later, when it was remembered.
- A handling activity that happened but never made it onto the bill, because nobody flagged it up to the right person.
- A value-added service that was performed (just that one time) as a favour, which has now, somehow, become expected, and totally unpaid work.
None of these discrepancies are significant if you take them in isolation. But across a whole month, and across every client, they’ll often add up to a number that’ll make the finance director wince.
The frustrating part about all of the above is that the information was there the whole time.
Your warehouse system recorded that work accurately, down to the second. The problem was born in the air gap between those records and the final invoice. It happened during the manual reconciliation step, because that’s where things tend to get missed.
Why this stings 3PLs so much
If you’re running a single-client operation, billing is (at least conceptually) quite simple: you know what you’re charging for, because that’s what’s in your WMS. The 3PL world, though, is harder to deal with by an order of magnitude, and that’s because of multi-tenancy.
A third-party logistics operator might be running dozens of clients out of a single building.
Each of them will be on a different contract, each of them might have their own rate card, their own rules about what’s billable and what isn’t, their own individual quirks that were negotiated during the sales process and then half-forgotten. Perhaps one client pays for storage by the pallet, but another does it by the cubic metre. Maybe one of them includes a certain number of handling movements in the base rate and then accepts charges for anything above it. Yet another one wants every single touch itemised if they’re going to pay the bill without questioning everything. And then one of them has a special arrangement on Returns that the Ops team knows about, but the billing spreadsheet doesn’t.
And having to reconcile all of the above, by hand, each and every month, is typically where the wheels start to fall off.
It’s not that anyone’s bad at their job, quite the opposite, actually. It’s simply that the complexity of what’s been achieved in the warehouse has outgrown the tools that your managers have been given to manage it. A spreadsheet that worked fine for five clients became a total liability once that number got to twenty-five. And the errors that were created during the (now rather convoluted) process were exactly the kind of thing that wouldn’t get noticed until Finance started to hunt for its missing margin.
But usually, it isn’t. It’s a process problem. A pick path problem, specifically. Which is a much more solvable thing.
When Optioryx is handling your warehouse pick path optimisation, the effectiveness gap between your newest hire and your most experienced picker narrows considerably. Because the system is doing the on-the-fly, difficult thinking. Your people follow optimised instructions and pick more, faster — regardless of how long they’ve been on the job.
Pair that with User Services Portal (USP) and Mobile from USP, and those instructions reach the right person on the right device — without anyone needing to hike back to a terminal in the back office to find out what they should be doing next.
The real cost of 3PL billing errors
There’s a relationship cost to all of this.
When Operations and Finance are working from different numbers, they simply stop trusting each other. Finance starts to assume that the floor is under-recording billable work. Operations starts to feel as if Finance is blaming them for shortfalls that they can’t see and didn’t cause in the first place. And both of them are partly right and both of them are frustrated, because the real problem is the process that sits in between them, rather than one or the other team.
And there are other costs too: the overly-long monthly reconciliation meeting that everyone dreads. The time that senior people spend arguing about whose figures are correct instead of actually running the business. The client invoices that go out late because the numbers couldn’t be agreed in time… which will then have the knock-on effect of souring customer relationships, as well as the internal ones.
solution: bill from WMS Transactions
The way to fix this is to remove the step that creates the problem in the first place.
When billing is driven directly off the warehouse system’s record of what happened, there’s just one record. The work that the WMS captures is the work that gets billed. And that’s the end of it. Dispatcher WMS records every activity at the point it happens, accurately, and in real time. It’s the only source of truth required. All you have to do now is to bill from that information, rather than from any parallel process that might have been running alongside it.
It takes the activity that’s already been captured by the warehouse system and it turns it into billing records, applying each client’s rate card and rules automatically rather than relying on someone to remember every little detail.
- The pallet that’s being stored gets charged at the right rate for that client.
- Any handling movement above the agreed threshold for a specific client gets recorded, so that it can be invoiced.
- The value-added service gets itemised every single time it happens, because the system saw it happen, knows it’s billable and can prove it.
- And the multi-tenancy complexity that can break even the most robust of spreadsheets is exactly the kind of rules-based work that the eBilling software handles accurately and without complaint.
The result isn’t just fewer errors (although there’ll be far fewer errors).
It’s also that operations and finance are finally looking at the same number. The monthly reconciliation meeting flies past, because there’s less to reconcile. Invoices can be sent out faster, because the figures don’t need negotiating first. And that margin leaking through the gap between systems gets to stay in the business, exactly where it was supposed to be in the first place.
The sweet reward
We’re not going to pretend that if you implement eBilling that your billing work will evaporate into thin air, or that it’ll magically fix everything. Because contracts will still have to be set up correctly. Rate cards will still need to be right. Someone will still have to agree the rules with each client while they’re being onboarded.
What will change, though, is that once those rules have been correctly set up in the system, they’ll be applied consistently, every single time, without needing to rely on anyone remembering the weird and wonderful arrangements originally agreed for a specific client’s Returns.
We’ve spent a long time working with 3PLs and the operations that supply them, and the disagreement between operations and finance is one of the most common problems that we see. Fortunately, it’s also one of the most fixable, because the cause is almost always structural rather than human. And structure, well, we can help you with that. Your numbers disagree because the systems you’re using aren’t properly joined up. Not because anyone’s doing anything wrong.
If any of this sounds like your monthly reconciliation, come and have a chat. We’re always happy to talk through how your billing and your warehouse data currently fit together, and to check what any gaps might be costing you. You’ll come away with a clearer picture either way. Book an obligation-free discovery call now.
FAQ: 3PL billing
Because quite often, there are two records of the same event. The WMS records what physically happened in the warehouse; but the invoice is built by a separate process, often involving spreadsheets, memory of what the contract says, and manual re-keying. Discrepancies are born in the air gap between the two different records, and usually – during the manual reconciliation step.
The slow accumulation of small unbilled or misbilled items: storage charges that start late, handling activities that never make it onto the bill, value-added services performed as a one-off favour that became expected and unpaid. Individually trivial, but across a month and across every client they add up to a number that makes the finance director wince.
eBilling takes the activity that Dispatcher WMS has already captured, accurately and in real time, and turns it into billing records, applying each client’s rate card and rules automatically. There’s one record of the work, and it’s the one that gets billed, which removes the manual reconciliation step where errors are often created.
No, contracts still have to be set up correctly, rate cards still need to be right, and the rules still need agreeing with each client at onboarding time. What eBilling changes is that once those rules are in the system, they’re applied consistently – every single time, without relying on anyone’s memory.
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