Accounting Best Practices, Fifth Edition

4–18. Improve Shipping Charge Revenue

A standard component of many customer invoices is the shipping charge, which may include a hefty profit percentage. Part of the billing process requires the accounting staff to separately calculate this shipping charge and include it in each invoice. Since the accounting staff sometimes forgets to include this line item, companies suffer revenue leakage and correspondingly reduced profits.

The best way to ensure that shipping charges are always billed is to make their inclusion in an invoice completely unavoidable. Here are some ways to do so:

• Default template. Create a default invoicing template in the accounting software that includes a prelisted shipping line item, as well as a default shipping charge. A problem is that the billing staff may use the default shipping charge every time.

• Summary price. Roll the freight charge into the product price, and offer “free” shipping. Though this approach ensures that shipping will always be charged, the company may not be able to compete on a price basis against competitors who offer lower initial prices and then add a shipping charge.

• Use a “freight” sales tax. If shipping is charged as a standard percentage of sales, consider setting up a “freight” sales tax authority in the accounting software that will automatically include a shipping charge as part of the sales tax calculation. Since customers may protest the unusually high “sales tax” line item, consider changing the title of this line to “sales ...