Billing and invoicing are at the heart of any third-party logistics or 3PL business.
Yet many companies struggle with inefficiencies that cost them revenue and trust.
In fact, a study indicated that more than 80% of 3PL warehouses lose revenue due to uncaptured monthly shipping, receiving and storage charges.
And with the global 3PL market projected to reach $1.7 trillion by 2029, 3PL warehouses must optimize their billing processes to maintain competitiveness and ensure financial health.
In this article, we’ll discuss everything you need to know about 3PL billing, including the types of charges in 3PL systems, common billing models, challenges and even best practices. We’ll also explain how you can implement an automated billing system for your 3PL warehouse.
Let’s get started.
What is 3PL Billing?
3PL billing is a process by which 3PL providers charge their clients for the services they deliver, including shipping and receiving fees, storage charges, order fulfillment costs and custom services.
As part of their role, 3PLs own and operate the warehouses, manage daily operations, and handle worker compensation, offering a comprehensive logistics solution for businesses.
How 3PL Billing Works?
Here’s how third-party logistics companies track, calculate and bill for their services:
- Establish Contract Terms: 3PL providers establish formal contracts that specify service commitments, delivery requirements, pricing structures and payment terms. This contract serves as the foundation for all billing activities.
- Track Warehouse Activities: 3PLs then use their warehouse management system, or WMS, to record all operational data including transportation records, storage usage, labor hours, order volumes and equipment usage for accurate billing.
- Set Service Pricing: The billing model includes two parts: fixed monthly fees for basic services like facilities and administration, plus variable charges that change based on how many services the client actually uses.
- Establish Billing Cycles: Providers establish consistent billing cycles, typically monthly, to capture and process all service charges systematically. This helps both parties manage their cash flow effectively.
- Create Detailed Invoices: The 3PL provider’s finance team compiles all service data, applies the agreed rates and produces detailed invoices showing exactly what services were provided during the billing period.
- Process and Verify Payments: Both parties check the charges, process payments and reconcile accounts to ensure everything matches the agreed terms.
Each 3PL provider can easily customize this billing framework to meet specific client needs. The key takeaway here is to always maintain clear documentation throughout the process.
Benefits of 3PL Billing
There are several benefits of a 3PL billing system:
- Reduce Shipping Costs Through Negotiation: Many 3PLs negotiate volume discounts with carriers like FedEx and UPS, thanks to the large-scale shipping operations they manage. These cost savings are passed on to clients, making logistics more affordable and competitive.
- Eliminate Errors and Disputes: Accurate billing ensures that every service is properly recorded and charged. This reduces missed charges, prevents overbilling and minimizes chances of disputes with clients.
- Build Trust Through Transparency: Detailed invoices clearly outline all charges and give clients a full understanding of what they’re paying for.
- Maximize Revenue Potential: By capturing every billable event—whether it’s storage fees, custom services or last-minute requests—you prevent revenue leakage, align billing with actual costs and create opportunities for better financial management.
- Save Time and Increase Productivity: 3PL billing automation streamlines the process and eliminates manual tasks like data entry and calculations. This allows your 3PL operational team to focus on higher-value activities.
- Scale Without Losing Control: As your 3PL business grows, a robust billing system can handle more clients and services without adding complexity. This allows you to scale efficiently and confidently.
Types of Charges in 3PL Systems
The cost structure of third-party logistics involves multiple components that reflect different aspects of warehousing and fulfillment operations.
Here’s a quick breakdown of the charges that logistics professionals need to know about:
1. Storage and Space Utilization
Storage forms the foundation of 3PL pricing.
Warehouse space charges typically reflect the actual footprint inventory occupies, whether measured by pallet positions, square footage or cubic volume.
Many providers implement tiered pricing models that reward higher volume commitments with reduced rates.
This approach optimizes warehouse utilization while providing clients with predictable storage costs.
2. Inventory Handling Operations
Operational charges cover all physical movement of goods throughout the facility, including:
- Receiving new inventory
- Conducting quality checks
- Processing shipments
- Managing stock placement
All of this, and more, determine the fee structure of the contract. For example, if a client wants their goods handled a certain special way, they can be charged premium rates.
3. Order Fulfillment Services
Order processing represents a significant portion of 3PL charges. This covers picking operations, packing services, shipping preparation and fees (and more), and reflects the 3PL’s costs for manning the warehouse with workers.
3PL providers typically structure these costs based on order volume and complexity. And just like other costs, additional charges may apply for specialized packaging requirements, custom labeling or rush processing.
4. Technology Infrastructure
Modern warehousing relies heavily on technological systems. 3PL providers charge for their access to WMS, system integration, reporting capabilities and other digital tools that support their operations.
These fees ensure clients benefit from robust inventory tracking, order management and operational visibility. These may not be charged separately but will be bundled with other costs.
5. Account Support Services
Professional account management ensures smooth operations and clear communication.
Monthly management fees typically range from $50-1,000/month and cover essential services like performance reviews and inventory planning.
The scope of these services naturally scales with operational complexity and client volume.
A basic package might suffice for clients shipping 500 orders monthly, providing standard support and regular check-ins.
High-volume clients processing 10,000+ monthly orders, especially those with international operations, require premium support services and will be charged more.
How to Implement an Automated Billing System
If you want to streamline your 3PL’s operations and boost billing accuracy, you need to have an automated billing system in place. Here’s how to do it:
Step #1: Analyze Your Current Billing Process
Start by analyzing each step of your existing billing workflow; from activity tracking to invoice generation—track where manual data entry creates bottlenecks or where errors frequently occur.
For example, if you notice your team spending unnecessarily long hours reconciling storage charges, you need to mark this a priority area for automation.
Step #2: Choose the Right Billing Software
Once you’ve identified areas of improvement, it’s time to look for a WMS that aligns with your business needs.
We may be biased here, but Da Vinci Unified’s WMS is a terrific option. Our system is built to handle the challenges of 3PL billing from end to end, with none of the gaps in billing automation that many other WMS’s leave.
While evaluating your options, focus on solutions that:
- Automate billing activities like storage, shipping and custom services to reduce manual effort and errors
- Allow for flexible billing structures that support both fixed and variable charges to match client agreements
- Seamlessly integrate with your existing tools, such as QuickBooks for accounting or Shopify for e-commerce
- Scale with your business so you can quickly adapt to increased client demands and service volumes
- Provide actionable insights by offering reporting tools to monitor billing performance and identify inefficiencies
Step #3: Define Your Billing Parameters
Set clear billing rules in your system based on client agreements.
Specify how fixed charges (e.g., administrative fees) and variable charges (e.g., per-shipment costs) will be calculated.
Configure these rules to handle any exceptions, such as customs services, penalties and discounts to ensure consistency across all invoices.
Step #4: Integrate with Your Existing Systems
Next, streamline your operations by integrating your 3PL billing software with the existing tools in your tech stack.
For example, if you use QuickBooks, Amazon, Shopify, or a transportation management system (TMS), connect it with your WMS to centralize your data.
Da Vinci Unified integrates with all popular tools to reduce manual data transfers and improve your workflow accuracy.
Step #5: Train Your Team
Once your automated billing system is configured, make sure your team knows how to use it.
Provide practical training that focuses on:
- Inputting and Adjusting Billing Rules: Teach users how to set or modify parameters for fixed, variable and custom charges.
- Reviewing Invoices: Show your team how to check for errors or discrepancies before invoices are sent to clients.
- Generating Reports: Train them on using reporting tools to monitor billing performance and identify potential issues.
- Troubleshooting: Prepare your team to resolve common problems, such as incorrect data inputs or integration issues.
Step #6: Monitor and Optimize
Keep a close eye on the performance of your billing system to ensure your 3PL billing process stays accurate, efficient and aligned with your business goals. Use the reporting and analytics features to:
- Catch Billing Errors: Regularly review invoices and reports to ensure all charges are accurate and no billable events are missed.
- Identify Trends: Monitor metrics like revenue per client or the frequency of custom services to refine your pricing strategy.
- Adjust for Growth: As your business expands, update your system to accommodate new clients, services, or changes in operations.
Common Billing Models in 3PL
3PLs use different billing models to accommodate various client needs. These models, or a combination of them, are typically negotiated during the onboarding process, as the 3PL works closely with clients to understand their unique requirements and tailor the billing approach accordingly.
1. Flat Rate Pricing
Clients are charged a fixed monthly fee for a pre-decided set of logistics services, such as storage, order picking and packing and inventory management.
Pros:
- More predictable costs make budgeting easier for clients
- Simplifies the billing process for 3PL providers
- Guarantees consistent revenue regardless of service fluctuations
Cons
- May not reflect actual service usage, leading to overpayment or under-compensation
- Lacks flexibility for clients with fluctuating service needs
2. Activity-Based Pricing
Clients are charged based on the activities of logistic providers.
Each task, from receiving to shipping and everything in between, carries a predetermined rate that increases as more activities are performed.
Pros
- Clients see exactly what they’re paying for
- Charges adjust based on actual service usage
- Fair compensation for 3PL providers when service levels vary
Cons
- Can be complex to track and calculate for each activity
- Less predictable for clients, making budgeting more challenging
3. Cost-Plus Pricing
3PLs charge actual operational costs plus an agreed-upon markup percentage. This creates complete cost transparency while ensuring fair provider compensation.
For example, if a client’s share of monthly warehouse operations costs is $10,000, a 15% markup results in an $11,500 invoice. This model works well for new relationships where historical data isn’t available for rate setting.
Pros
- Clients understand the exact cost structure
- Providers are compensated for actual costs plus a reasonable profit
- Ideal for new partnerships where historical data for fixed rates is unavailable
Cons
- Clients might feel wary of markups without clear value justification.
4. Fixed-Variable Pricing
This hybrid model combines a base fee with usage-based charges to protect both provider and client interests. For instance, a client pays $3,000 monthly for core services, with additional fees when volumes exceed set limits.
Pros
- Balances stability and flexibility by combining a predictable base fee with usage-based charges
- Protects providers with stable revenue and clients with manageable base costs
- Adapts to volume fluctuations while maintaining fairness
Cons
- Requires clear thresholds and parameters for variable charges to avoid disputes
- Clients with very stable needs may find the variable component unnecessary
5. Outcome-Based Pricing
The industry is shifting toward performance-based pricing models. Here, 3PL provider compensation is tied directly to achieving specific KPIs, such as delivery accuracy or inventory management targets.
Pros
- Aligns provider incentives directly with client success metrics
- Rewards providers for high performance and accountability
- Encourages continuous improvement in service quality
Cons:
- Risky for providers if external factors affect performance metrics
- Requires robust tracking and agreement on KPIs to avoid disputes
- May not be suitable for every client or service type
Challenges in 3PL Billing and Invoicing
Here are some common challenges involved in 3PL billing and invoicing:
- Rate Structure Complexity: Juggling multiple pricing models, client-specific rates, volume discounts and seasonal charges creates room for mistakes.
- Data Quality Issues: If a 3PL still relies on manual data entry, it can lead to all sorts of data quality issues. Missing charges, incorrect quantities and mismatched service dates not only hurt your revenue but can also chip away at your clients’ trust in your services.
- System Integration Gaps: Many providers struggle to sync their WMS with accounting platforms which can delay billing cycles (often meaning missing billable activities).
- Dispute Resolution Time: Handling billing disputes becomes tedious without proper documentation. Teams waste hours investigating charges, gathering activity records and addressing client concerns.
- Cash Flow Management: Delayed invoicing due to complex billing cycles or manual processes leads to extended payment cycles.
3PL Billing Best Practices
Follow these best practices to improve your billing operations and strengthen client satisfaction.
- Document Every Service Agreement: Create detailed contracts that mention your rates, services and special terms. Maintain a centralized system for quick reference and regular updates to prevent billing confusion.
- Standardize Your Rate Cards: Build consistent pricing structures while allowing for custom client arrangements to streamline billing processes without losing flexibility for key accounts.
- Automate Data Collection: Use your WMS system to automatically track all the billable activities. This eliminates manual tracking and ensures every service gets captured, from storage to special handling.
- Implement Regular Audits: Schedule monthly reviews of billing processes and random invoice checks. Catch patterns of missing charges or calculation errors before they impact revenue.
- Maintain Clear Communication: Share detailed activity reports with clients alongside invoices. Break down complex charges and provide supporting data to prevent disputes.
- Train Staff Consistently: Ensure your billing team understands all service offerings, rate structures and system processes. Regular training reduces errors and improves client support.
- Monitor Performance Metrics: Track key indicators like invoice cycle time, dispute frequency and collection rates. Use this data to identify areas for improvement in your billing process.
3PL Billing FAQs
Q. What are 3PL charges?
3PL charges include fees for warehousing, order fulfillment and distribution services. Common charges cover storage space, order processing, picking and packing, shipping and special handling requirements.
Q. How does 3PL billing software improve efficiency?
3PL billing software automates invoice generation, eliminates manual data entry, and reduces calculation errors. It captures billable activities in real time, applies correct rates automatically and generates detailed invoices with supporting documentation.
Q. How do I choose the right 3PL billing system?
Choose a billing system that matches your operational needs, can scale with your business and provides reliable customer support. Solutions like Da Vinci Unified offer essential features including automated rate calculations, WMS integration and robust security measures.
Q. What is meant by 3rd party billing?
Third-party billing refers to the process where a logistics provider charges clients for storing, handling, and shipping their products.
Why Efficient 3PL Billing Matters for Your Business
Efficient 3PL billing isn’t just about sending invoices—it’s about ensuring accuracy, transparency and profitability across your operations. And by automating your billing processes, you can reduce errors, capture every billable event and build stronger trust with your clients.
Da Vinci Unified’s 3PL billing engine simplifies this process with features like automated tracking, customizable billing rules and seamless integrations with tools like QuickBooks and Shopify.
It’s a solution designed to handle the complexities of 3PL operations so your business stays competitive and scales efficiently.
Request a demo of Da Vinci Unified today to see how it can transform your billing process.