Best Practices

October 26, 2025

8 min read

Books Automator Team

Hidden COGS: Automating the Tracking of Freight, Duties, and Packaging Costs

Your COGS is more than just inventory cost. Learn to automatically include all related expenses—freight-in, customs duties, and direct packaging costs—for precise profitability.

Introduction: Are “Hidden” Costs Eating Your Profits?

You’ve meticulously crafted your product, negotiated supplier prices, and even optimized your marketing spend. Yet, when you look at your profit margins, do they feel… thinner than they should be? For many small businesses, especially those involved in manufacturing, e-commerce, or importing, the culprit often lies in the “hidden” costs of goods sold (COGS) – specifically, freight, duties, and packaging.

These aren’t just minor expenses; they are integral components of your true product cost, and if not tracked accurately and efficiently, they can silently erode your profitability, distort your inventory valuation, and lead to poor pricing decisions. Manually sifting through stacks of carrier invoices, customs declarations, and packaging receipts is not only a monumental time sink but also a breeding ground for errors.

The good news? You don’t have to live with this inefficiency. By leveraging modern bookkeeping automation tools and strategies, you can transform how you track these critical COGS components, gaining unprecedented clarity, saving countless hours, and ultimately, boosting your bottom line. Let’s dive into how.

1. The Hidden Drain: Why Manual Tracking Fails You

Before we talk about solutions, let’s acknowledge the pain. If you’re currently wrestling with manual processes for freight, duties, and packaging, you’re likely experiencing some of these common frustrations:

Time-Consuming Data Entry & Reconciliation: Imagine receiving dozens of separate invoices from FedEx, UPS, DHL, your customs broker, and your packaging supplier each month. Each needs to be opened, categorized, and manually entered into your accounting system, then reconciled against bank statements. This isn’t just a few minutes; it’s hours, or even days, stolen from more strategic tasks.
Inaccurate COGS & Inventory Valuation: Without a systematic way to allocate these costs to specific products or inventory batches, your reported COGS is incomplete. This means your gross profit is overstated, your inventory is undervalued, and your financial statements don’t reflect the true health of your business. This can lead to incorrect pricing, where you might be selling products at a loss without even realizing it.
Lack of Real-Time Visibility: Manual processes are inherently backward-looking. By the time you’ve compiled and entered all the data, weeks may have passed. This delay prevents you from seeing the true, current cost of your products, making it impossible to react quickly to rising shipping rates or duty changes.
Missed Cost-Saving Opportunities: If you can’t easily analyze your freight spend by carrier, route, or product, how can you identify opportunities to negotiate better rates or optimize your logistics? The same applies to packaging – are you overspending on materials because you lack granular data?
Audit Headaches: When tax season or an audit rolls around, proving the accurate cost basis for your inventory and COGS can become a nightmare without well-organized, auditable records.

Real-World Example: Consider “Bella’s Boutique,” an e-commerce store selling imported handcrafted jewelry. Bella receives separate invoices for the product itself, international freight, customs duties, and local shipping to her warehouse. She also pays for custom jewelry boxes and padded envelopes. If Bella manually enters each of these into QuickBooks Online as a separate expense, her COGS will only reflect the raw product cost. Her actual profit per necklace is significantly lower, and she’s missing crucial data to decide if a new, cheaper freight forwarder is truly better, or if her custom packaging is worth the cost.

2. Unveiling the Solution: Automation at Your Fingertips

The core principle of automating hidden COGS tracking is to integrate systems and leverage intelligent software to capture, categorize, and allocate these costs automatically. This moves you from reactive data entry to proactive cost management.

The Power of Landed Costing: At the heart of this solution is “landed cost.” Landed cost is the total cost of a product once it has arrived at the buyer’s doorstep. It includes the original product price plus all transportation fees, customs duties, taxes, insurance, currency conversion, and packaging costs. Calculating landed cost accurately is paramount for understanding your true profitability.

Here’s how automation helps achieve this:

Key Automation Tools & Integrations:

Robust Accounting Software (The Foundation):
- QuickBooks Online (QBO) Advanced / Xero: While their basic versions have limitations for complex landed costing, their higher tiers or integrations can handle it. You’ll set up specific COGS accounts for “Freight In,” “Customs Duties,” “Packaging Costs,” etc.
- NetSuite / Sage Intacct: For larger, more complex businesses, these ERPs offer sophisticated landed cost modules, allowing for granular allocation rules and comprehensive financial reporting.
Inventory Management Systems (IMS) with Landed Cost Functionality:
- DEAR Systems (now Cin7 Core): Excellent for small to medium businesses. DEAR allows you to create “Landed Cost” components (e.g., freight, duties, insurance) and allocate them to specific purchase orders based on weight, volume, value, or quantity. It then automatically updates the average cost of your inventory items.
- Unleashed Software: Similar to DEAR, Unleashed offers robust landed cost features, integrating seamlessly with Xero and QBO. You can assign various costs to inbound shipments, ensuring accurate inventory valuation.
- Cin7 (Enterprise): For businesses with more complex supply chains, Cin7 offers comprehensive landed cost and supply chain management capabilities, integrating with various carriers and customs brokers.
- Katana MRP (for manufacturers): If you’re manufacturing, Katana helps track raw material costs and can factor in inbound freight and duties into your overall production cost, ultimately flowing into your finished goods COGS.
Accounts Payable (AP) Automation & Expense Management:
- Bill.com / Expensify / Melio: These tools are game-changers for capturing and processing invoices.
  - OCR Scanning: Upload a freight invoice, and the system uses Optical Character Recognition (OCR) to extract vendor, amount, and invoice number.
  - Automated Bill Entry: Bills are automatically created in your AP system.
  - Categorization & Approval Workflows: You can set up rules to automatically categorize freight invoices to your “Freight In” COGS account and route them for approval.
  - Payment Automation: Schedule and pay vendors directly through the platform, with transactions automatically syncing back to your accounting software.
EDI/API Integrations (For High Volume):
- For businesses with very high volumes of shipments, direct Electronic Data Interchange (EDI) or API integrations with major carriers (e.g., FedEx, UPS, USPS) or customs brokers can automatically pull shipping costs and duty charges directly into your IMS or ERP. This eliminates manual invoice processing entirely for these specific vendors.

3. Practical Implementation: A Step-by-Step Guide to Automation

Ready to get started? Here’s a structured approach to automating your hidden COGS tracking:

Step 1: Map Your Current Cost Sources & Processes

Before you automate, understand what you’re currently doing.

List all vendors: Who do you pay for freight (inbound/outbound), duties, customs brokerage, and packaging materials?
Gather example invoices: Collect a few invoices from each vendor. Note what information is typically provided (e.g., tracking numbers, product descriptions, weight).
Document current workflow: How are these invoices currently processed? Who receives them? Who approves them? How are they entered into your accounting system?

Step 2: Choose Your Tech Stack & Configure Your Chart of Accounts

Based on your business size and complexity, select the right tools.

Small/Growing Business (e.g., e-commerce, light manufacturing):
- Accounting: QuickBooks Online Advanced or Xero.
- Inventory Management: DEAR Systems (Cin7 Core) or Unleashed.
- AP Automation: Bill.com or Expensify.
- Action: In your accounting software, create specific COGS accounts:
  - 5010 - Cost of Goods Sold: Product Cost
  - 5020 - Cost of Goods Sold: Freight In
  - 5030 - Cost of Goods Sold: Customs Duties & Tariffs
  - 5040 - Cost of Goods Sold: Packaging Materials
  - 5050 - Cost of Goods Sold: Insurance Inbound
Larger/Complex Business (e.g., heavy manufacturing, multi-location):
- ERP: NetSuite, Sage Intacct, or Cin7 (Enterprise).
- AP Automation: Bill.com or a module within your ERP.
- Action: Leverage your ERP’s native landed cost functionality and ensure your chart of accounts is structured to capture these costs distinctly.

Step 3: Implement Landed Costing in Your IMS/ERP

This is where the magic happens for accurate inventory valuation.

Configure Landed Cost Components: In DEAR Systems or Unleashed, go to your settings and define your landed cost components (e.g., “Freight,” “Duty,” “Customs Broker Fee”).
Link Costs to Purchase Orders (POs):
- When you receive an invoice for freight or duties related to a specific product shipment, you’ll enter this bill into your AP system (e.g., Bill.com).
- Crucially, you’ll then link this bill to the corresponding Purchase Order (PO) in your IMS (DEAR/Unleashed).
- Example: You receive a shipment of 100 widgets from China. The supplier invoice is $1,000. You also receive a freight bill for $200 and a duties bill for $50. In DEAR, you would enter the $200 freight and $50 duties as “Landed Cost” components against that specific PO.
Allocate Costs: Your IMS will then ask how to allocate these costs to the items on the PO. Common methods include:
- By Value: Distribute costs proportionally to the value of each item.
- By Quantity: Distribute costs equally per unit.
- By Weight/Volume: Ideal for freight, where heavier/bulkier items incur more cost.
Automated Inventory Valuation: Once allocated, the IMS automatically updates the average cost of each item in your inventory to reflect its true landed cost. This is vital for accurate COGS calculation when the item is sold.

Step 4: Automate Bill Entry & Payments for All Hidden COGS

This streamlines the AP process for all these costs, whether they’re landed costs or general packaging expenses.

Bill.com / Expensify Setup:
- Vendor Setup: Add all your freight carriers, customs brokers, and packaging suppliers as vendors.
- Email Inbox: Set up a dedicated email address (e.g., bills@yourcompany.com) where vendors can send invoices directly, or you can forward them. Bill.com/Expensify will automatically pull these in.
- OCR & Auto-Categorization: When an invoice arrives, the system uses OCR to extract data. Set up rules to automatically assign the correct COGS account (e.g., invoices from “UPS” go to “Freight In,” invoices from “Customs Broker X” go to “Customs Duties”).
- Approval Workflows: Designate who needs to approve these bills before payment.
- Payment & Sync: Pay vendors directly through Bill.com/Melio. All transactions, including bill creation, approval, and payment, automatically sync to QBO/Xero.
Recurring Bills: For regular packaging suppliers or fixed monthly freight charges, set up recurring bills in your AP system to minimize manual effort.

Step 5: Regular Review & Optimization

Automation isn’t “set it and forget it.”

Monitor COGS Reports: Regularly review your Profit & Loss statement. Are your “Freight In,” “Duties,” and “Packaging” COGS accounts showing expected trends?
Analyze Landed Cost Variances: If your actual landed cost differs significantly from your estimated landed cost, investigate why. This could indicate issues with supplier pricing, freight quotes, or customs charges.
Identify Cost-Saving Opportunities: With clear, categorized data, you can:
- Compare freight costs across carriers for similar routes.
- Negotiate better rates with your most expensive suppliers.
- Evaluate the cost-effectiveness of different packaging materials.
Refine Allocation Rules: As your business evolves, you may need to adjust how landed costs are allocated (e.g., switching from allocation by value to allocation by weight if product weights become more varied).

4. ROI and Avoiding Common Pitfalls

The investment in time and tools for automation pays dividends quickly.

The Return on Investment (ROI):

Significant Time Savings: Imagine reclaiming 5-10 hours per week (or more!) currently spent on manual data entry and reconciliation. That’s valuable time you can reinvest in growth, strategy, or even personal well-being.
Unparalleled Accuracy: Your financial statements will finally reflect the true cost of doing business. This means accurate inventory valuation, precise gross profit calculations, and reliable data for tax reporting.
Enhanced Profitability: By understanding your true landed costs, you can make informed pricing decisions, identify underperforming products, and pinpoint areas for cost reduction, directly impacting your bottom line.
Improved Cash Flow Management: Automated AP means you can schedule payments strategically, avoiding late fees and optimizing your cash flow.
Better Business Intelligence: With real-time, accurate data, you gain a deeper understanding of your supply chain and can make data-driven decisions faster.
Audit Readiness: Clean, integrated records make audits significantly less stressful and time-consuming.

Avoiding Common Pitfalls:

Not Defining Landed Cost Components Clearly: Be specific about what constitutes freight, duties, insurance, etc. Ambiguity leads to errors.
Failing to Integrate Systems: The power of automation comes from systems talking to each other. Don’t fall into the trap of using a great AP tool but then manually re-entering data into your IMS.
Ignoring the “Small” Costs: While a single $5 packaging invoice might seem insignificant, these costs add up rapidly. Automate them all.
Lack of Clear Internal Processes and Training: Even with the best software, your team needs to understand the new workflow. Document procedures and provide adequate training.
Not Regularly Reviewing & Refining: Your business changes, and so should your automation setup. Periodically review your landed cost components, allocation methods, and vendor rules.
Over-Complicating It: Start simple. Focus on your biggest cost drivers first, then expand. Don’t try to automate everything perfectly on day one.

Key Takeaways

Hidden COGS are Real: Freight, duties, and packaging significantly impact your profitability and often go untracked or are manually mismanaged.
Automation is the Solution: Leverage integrated accounting, inventory, and AP automation software to streamline tracking.
Landed Costing is Crucial: Implement landed cost functionality in your IMS to get a true picture of your product costs and accurate inventory valuation.
ROI is Substantial: Save time, improve accuracy, boost profitability, and gain invaluable business insights.
Start Smart, Stay Agile: Begin by mapping your costs, choose appropriate tools, and commit to regular review and optimization.

Next Steps for Readers

Audit Your Current Process: Take an hour to list all your freight, duties, and packaging vendors. How are their invoices currently handled? What are your biggest pain points?
Research Software: Explore QuickBooks Online Advanced/Xero, DEAR Systems/Unleashed, Bill.com/Expensify. Look for demo videos and free trials.
Consult an Expert: If this feels overwhelming, reach out to a bookkeeping automation consultant (like me!). We can help assess your needs, recommend the right tech stack, and guide you through implementation.
Start Small: Pick one type of “hidden” cost, like inbound freight, and focus on automating that first. Once you’ve mastered it, expand to duties and packaging.

Conclusion

In today’s competitive landscape, understanding every facet of your costs is not just good practice – it’s essential for survival and growth. By embracing automation for tracking freight, duties, and packaging, you’re not just saving time; you’re gaining a powerful competitive advantage. You’ll move from guessing your true costs to knowing them with precision, empowering you to make smarter decisions, price your products effectively, and unlock the full profit potential of your business. Take control of your hidden COGS, and watch your profitability soar.

Ready to Get Started?

Ready to modernize your bookkeeping? Start by identifying your biggest manual processes and researching available automation solutions. The future of efficient bookkeeping is here – and it’s more accessible than ever.

Need help choosing the right automation tools? Check out our integration guides or contact our team for personalized recommendations.

Have questions about bookkeeping automation? Found this article helpful? Share your thoughts and questions in the comments below, or reach out to our team for personalized guidance on your automation journey.