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Recording Stock Sold On Consignment

There are potentially a few ways that you could record stock sold on consignment i.e: stock that you despatch to your customers and you do not charge them until they sell the stock.

Method 1 (Least preferred but works if you don’t have inventory counts).

A very simple method would be to create a zero value invoice to the customer to send them the consignment stock, then as they provide sales reports each month showing they have sold part of the consignment stock, you then raise another invoice to credit the sold stock at zero value, and charge it at full value.

How:

1. Raise an invoice for the quantity that you are sending the customer but put the price at zero. The order is despatched and the inventory is depleted and the customer effectively has the inventory at no cost.

2. At the end of each period/month the customer supplies you sales reports to tell yon how much stock they sold and in theory what they have left. You raise an invoice that has 2 line items for each product line sold, one line with a negative quantity and a zero price that is returning the inventory to stock, then a second line with a positive quantity and a positive price that is selling the stock to the customer at the correct price.

Drawbacks: The drawback of this approach is that, without doing some manual calculations, you cannot easily tell or reconcile how much inventory remains at the customer that has not been invoiced and you will have to work it out or rely on your customer’s systems, neither of which is ideal.

 

Method 2 (Preferred method, shows unbilled balance at customer and deals with monthly invoices).

The issues with method one revolve around counting inventory and while we can see how much we have sent to the customer, we cannot see how much remains.

One way to deal with both the inventory and the sales aspects of this issue would be to setup a specific stock location that represents that customer and when they need more stock you can transfer stock to that location. This will show on your inventory counts so you will know how much unbilled stock the customer has.

A problem with this is that this stock may still show as available to sell to other customers, which is not really true. To address this, you can create an order for the amount you have sent to the customer but leave the order open. The open order will show the stock as committed so you are not tempted to sell it to someone else.

How:

1. The customer orders more consignment stock. You process a stock transfer for these quantities to the customers location. You raise an order for these quantities but leave it open and do not despatch it. You may want to have this open order at zero value, and somehow flag it so you can exclude it during sales reporting eg use a “Consignments” customer account or put a specific value in the Order Reference so you can filter it out.

2. At the end of each period/month the customer supplies you sales reports to tell you how much stock they sold and in theory what they have left.

You raise an invoice that has a line with the correct quantity and price and despatch it from the customers location, this draws down their consignment stock and shows the correct amount remaining that they have on consignment.

Also you should reduce the remaining open consignment order so the quantities match the unsold quantities at the customers location. Again this to show the stock as committed so you are not tempted to sell it to someone else.