Distribution is a business of small percentages at large volumes, which makes it the industry least able to afford approximate bookkeeping. A distributor running a 24 per cent gross margin who expenses freight instead of capitalising it, books supplier rebates as sundry income, and lets customer rebates hide in marketing is not running a 24 per cent margin at all; the true number might be 19 or 29, and every pricing decision, every range review and every customer negotiation is being made off the wrong one. This guide covers the four systems that make a distributor’s numbers true: landed cost done per shipment, foreign exchange handled deliberately, stock control that survives an audit, and margin reporting that puts rebates where they belong.

Published: July 2026

Landed Cost: What the Stock Actually Cost You

The supplier invoice is the beginning of a unit’s cost, not the end of it. Landed cost is the full cost of getting stock to a sellable position: the supplier price plus international freight, marine insurance, customs duty, port and clearance charges, and inbound local cartage, capitalised into inventory value and released through cost of goods sold as units sell.

The method matters as much as the principle. Per shipment, the on-costs are allocated across the SKUs in the container on a sensible basis, by value for duty-style costs, by weight or volume where freight economics demand it, so each product carries its true unit cost into the inventory system. A container with $80,000 of product and $14,000 of freight, duty and charges is $94,000 of inventory, and a distributor expensing the $14,000 on arrival is overstating margin on every unit in that container by a hidden 17.5 per cent of cost, while making the buying months look worse and the selling months look better than either was.

Worked shipment

Container invoice $120,000, freight $11,000, duty $6,000, clearance and cartage $3,000. Landed inventory $140,000. If the business expenses $20,000 of on-costs and sells through at a 25 per cent “invoice margin”, true margin is closer to 10 to 12 points lower once landed cost hits COGS correctly. On $4 million of annual purchases with 15 per cent average on-costs, that is $600,000 of cost that either sits in the right place or corrupts every SKU ranking in the catalogue.

Two operating disciplines keep landed cost honest. First, cost every shipment as it clears, in the inventory system, before the stock sells, because retro-fitting landed cost quarterly produces margins nobody trusts. Second, review standard costs against actuals if the system runs standards: freight rates, duty settings and exchange rates drift, and a standard set in a cheap-freight year quietly flatters every margin report in an expensive one. Importers should also be running the deferred GST scheme as table stakes, shifting import GST from a border payment to a self-cancelling BAS entry. On $100,000 of monthly imports that is about $10,000 a month of float permanently returned.

Foreign Exchange: Deliberate, Not Discovered

Most Australian distributors buy in US dollars and sell in Australian ones, which puts a currency position inside every purchase order whether anyone manages it or not. The bookkeeping requirements are specific.

• Transact at transaction rates. Foreign currency purchases are recorded at the rate on the transaction date, and the difference between that and the rate actually achieved when the invoice is paid is a realised FX gain or loss, its own line in the P&L, never smeared into purchases or margin. A distributor whose FX result hides inside COGS cannot tell a buying problem from a currency one, and they require opposite responses.
• Revalue what is outstanding. Foreign currency creditor balances, and any foreign currency bank accounts, are revalued at each reporting date, with the movement recognised as unrealised FX. Skip this and the balance sheet is wrong by the currency’s move on every open shipment, which in a volatile quarter on a large order book is not a rounding error.
• Manage the exposure like the position it is. The gap between pricing a customer in AUD today and paying a supplier in USD in ninety days is a speculation unless it is managed: forward cover on committed orders, natural hedging where any USD revenue exists, or at minimum a written policy on what gets hedged and what is knowingly run open. The bookkeeping cannot make that decision, but it must make the exposure visible, open foreign currency commitments reported monthly, so someone can.

Worked FX miss

Open USD creditors of USD 400,000 when the AUD moves 5 cents against the position can swing about $40,000 of unrealised FX in a quarter. Hidden inside COGS, that swing looks like a margin problem and triggers a pointless price war. Reported as FX, it triggers a hedging conversation.

Stock Control: The Balance Sheet’s Biggest Number, Treated Like It

For most distributors, inventory is the largest asset on the balance sheet and the easiest to be wrong about. The control stack is standard and non-negotiable at scale.

• Perpetual inventory, cycle counted. A live per-SKU system reconciled by rolling cycle counts, high-value and fast-moving lines counted frequently, the long tail on a rotation, beats the annual stocktake it replaces on every dimension: shrinkage surfaces in weeks rather than at year end, and the June full count becomes a verification rather than a discovery. Variances get investigated with the same discipline as bank reconciling items, because a persistent negative variance on a portable, resaleable line is a name, not a mystery.
• Three-bucket visibility. Stock on hand, stock in transit for goods paid or committed but not landed, and any consignment or third-party-warehouse holdings, each its own ledger location, each reconciled monthly to its source document. In-transit stock is where distributors most often lose track of their true position, holding six figures on the water that neither the warehouse count nor the creditors ledger fully explains.
• Obsolescence faced annually. Every distribution book grows a tail of slow movers, superseded models and broken ranges. A written provisioning policy, ageing bands with escalating provisions, applied consistently, keeps the inventory number believable and forces the commercial conversation, clear it, return it, or stop buying it, that unprovisioned stock lets everyone avoid. A balance sheet carrying dead stock at cost is not conservative; it is deferred bad news with interest. On a $1.8 million inventory book, a realistic 5 per cent obsolescence provision is $90,000 of honesty the P&L should absorb deliberately rather than as a surprise write-off at sale or refinance time.

Margin Reporting: Rebates in the Right Place

Distribution margins are decided at the edges, and the edges are rebates, in both directions.

• Customer rebates and settlement discounts are contra revenue. Volume rebates owed to customers, settlement discounts taken, and promotional allowances are reductions of revenue, accrued as the qualifying sales occur, not marketing expenses discovered when the claim arrives. A distributor booking customer rebates below the gross margin line is overstating its margin with every major account, and precisely by the amounts those accounts negotiated hardest for. Accrue per agreement, per customer, monthly. A customer on 3 per cent volume rebate across $800,000 of annual purchases is a $24,000 margin haircut that must sit against that customer’s contribution, not in a general marketing bucket.
• Supplier rebates reduce cost of goods. Rebates earned from suppliers, volume tiers, early settlement, promotional support tied to purchases, are recognised as earned against the purchases that generated them, reducing COGS, with a receivable carried for amounts earned but unpaid. Booked instead as sundry income when the cheque arrives, they distort both the margin by product line and the timing of profit, and they vanish from the one analysis that needs them: which supplier relationships actually make money.

With rebates placed correctly and landed cost real, the reporting layer becomes possible: gross margin by product line and by customer, monthly, at true cost and true net revenue. That report is the entire strategic apparatus of a distribution business on one page, which ranges deserve shelf capital, which customers are profitable after their rebate deals and their freight, where price rises are overdue, and it cannot be produced from a ledger where freight is an expense and rebates are sundries.

The working capital layer sits on the same foundations: days inventory outstanding plus debtor days minus creditor days is the cash conversion cycle, and a distributor holding 80 days of stock, collecting in 45 and paying in 30 is funding 95 days of its own trading permanently. On $8 million revenue that is roughly $2.1 million of permanent working capital. Every improvement, faster stock turns from the margin-by-line report, tighter collections, terms renegotiated with the rebate data in hand, releases cash at zero cost. See working capital for SMEs and the cash conversion cycle guide. Forecast with the cash flow forecast calculator.

Expensive Path Versus Practical Path

Expensive path: expense freight, book rebates as sundries, annual stocktake only, no FX revaluation. Result: fictional 24 per cent margins, wrong range decisions, and a balance sheet lenders restate before they decline you.

Practical path: per-shipment landed costing, rebate accruals both ways, cycle counts, monthly margin-by-line and by-customer packs, deferred GST for importers. Finance support via outsourced finance services for a mid-sized distributor commonly sits $2,500 to $7,000 a month. Estimate the function’s cost with the bookkeeping cost estimator and stress-test an internal hire with the hire versus outsource numbers. See cost of bookkeeping in Australia. For strategic layering as the business scales, fractional CFO costs in Australia is the pricing reference.

Related resources and next reading

• Cost of bookkeeping in Australia
• Working capital for SMEs
• Cash conversion cycle explained
• Fractional CFO costs in Australia

FAQ

What is landed cost and what should it include?
The full cost of bringing stock to sellable position: supplier price plus international freight, insurance, customs duty, port and clearance charges and inbound cartage, allocated across the SKUs in each shipment and capitalised into inventory. It releases through cost of goods sold as units sell, so margins reflect what stock truly cost.

Why not just expense freight and duty when paid?
Because it overstates the margin on every unit and turns profit into a function of shipment timing: heavy-buying months crater, selling months flatter, and per-product profitability, the basis of range decisions, is sorted on the wrong numbers. Capitalising to landed cost is what makes the margin report mean something.

How should a distributor handle foreign currency purchases?
Record purchases at transaction-date rates, recognise realised FX gains and losses as their own P&L line when invoices are paid, revalue open foreign currency creditors at each reporting date, and report open currency commitments monthly so hedging decisions are made deliberately rather than discovered at year end.

Are cycle counts better than an annual stocktake?
For a perpetual system, yes: rolling counts weighted to value and velocity surface shrinkage and receipting errors within weeks, keep the inventory number continuously credible, and reduce the annual count to verification. Persistent variances get investigated like unreconciled bank items, because at distribution scale they usually have causes, and sometimes names.

Where do customer rebates belong in the accounts?
As contra revenue, accrued as the qualifying sales occur under each agreement. Booking them as marketing or discovering them when claims arrive overstates gross margin on precisely the largest accounts, and by precisely the amounts those accounts negotiated.

How should supplier rebates be treated?
As reductions of cost of goods sold, recognised as earned against the purchases that generated them, with a receivable for amounts earned but unpaid. Treated as sundry income on receipt, they distort product-line margins and hide which supplier relationships are actually profitable.

What is the cash conversion cycle and why does it matter here?
Days inventory plus debtor days minus creditor days: the number of days of trading the business permanently funds itself. Distribution runs long cycles by nature, so stock turns, collections and supplier terms are where cash is released at no cost, and the margin-by-line report is the tool that drives all three.

What monthly reports should a wholesale business produce?
Gross margin by product line and by customer at landed cost and net-of-rebate revenue, the inventory reconciliation across on-hand, in-transit and third-party stock with cycle count variances, the FX position on open commitments, rebate accruals both directions, and the cash conversion cycle against last month. That pack is the business on five pages.

Should importers use the deferred GST scheme?
Usually yes if import volumes are regular. Moving import GST to a self-cancelling monthly BAS entry permanently removes border cash drag measured in weeks on every shipment.

About Scale Suite

Scale Suite is a Sydney-based provider of outsourced finance teams and fractional CFO services for Australian SMEs. We deliver weekly bookkeeping, payroll, BAS/IAS lodgement, cashflow reporting, management accounts, and strategic fractional CFO oversight, all as a fully embedded team that works inside your business.

CA-qualified, Xero Certified, and registered BAS Agents, we replace fragmented bookkeepers and once-a-year accountants with one responsive finance function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.

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Disclaimer

We review and check this guide periodically. At the time of writing (July 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.

Sources

• Australian Border Force, customs duty and import declaration guidance (https://www.abf.gov.au)
• Australian Taxation Office, foreign exchange gains and losses guidance (https://www.ato.gov.au)
• Accounting standards guidance on inventory measurement and revenue recognition for rebates
• Australian Taxation Office, trading stock and record keeping guidance (https://www.ato.gov.au)