Consignment Invoices vs. Warehouse Transfers

Gary Brandl of New City Press recently asked the following:

 

From: Gary Brandl Sent: Tuesday, December 08, 2009 10:19 AM To: 'Ron Lawrence' Cc: 'NCP Accounting' Subject: consigment invoices

Ron,

Quick question: Could you give me a picture of how PA handles invoices that have “Consignment” as terms?

I’m assuming that the number of books entered in these invoices will no longer be “available” to sell to anyone else, correct?

More importantly, do we rightly assume that no COGS will be calculated for these invoices and that consequently nothing will change, for example, in the “approximate cost” column of the “Available Inventory Status” report?

Anything else we would need to be aware of?

Thanks.

Gary

 

From: Ron Lawrence Sent: Wednesday, December 09, 2009 8:15 AM To: 'Gary Brandl' Cc: Steve Carlson Subject: RE: consigment invoices

Hi Gary,

 

Consignment Invoices

Consignment invoices act like normal (“Net 30”) invoices except that when they ship inventory, it is moved to the consignment customer’s location. The invoice creates a receivable—just like a Net 30 invoice. The Consignment terms are for customers who typically request books but don’t expect to pay for them until THEY get paid. Amazon.com is a perfect example.

The real difference shows up when you get paid. You will log a receipt and typically pay for items that may appear on multiple invoices. When you apply funds to those specific items, they are removed from “consignment” status at the customers location. Through this mechanism, you can maintain a picture of not only how many books you have on your own shelf, but how many are on your consignment customer’s shelf as well.

 

 

 

Warehouse Transfers

Recently, we’ve added a new, but similar, mechanism for handling distributors. It’s tempting to use for traditional consignment customers as well. When you ship books to them, the terms on the invoice should be set to “Transfer”. This performs an inventory transfer of items from your location to the ship to contact’s location. There is NO receivable logged for the invoice—no charge to the billing contact. You have simply moved books to their location.

Now when the distributor sends you a report, you log a new invoice for the books they say they have sold. This will be a normal “Prepaid”,or, more typically, a “Net 120” invoice. At the bottom of the invoice screen, you can specify that the books are shipped out of THEIR location—not yours. This new invoice will of course create a receivable for the billing contact. The nice thing is that the receivable is real. The consignment receivable is questionable, because you don’t know when those books will actually sell.

The “Transfer” invoice is particularly handy because it takes the guesswork out of the horrendous terms you typically get with a distributor (i.e. Net 120 days for sales, but immediate credit for returns, and some percentage they hold back as a further hedge against returns) By the time you actually do get paid from a distributor, it’s hard to know what to apply those funds to. Using the above procedure, you ALWAYS invoice and ship what they say they have sold. So, you ALWAYS know exactly what they have left on the shelf. Then you can confidently apply the payment you receive (whatever the amount) to the oldest invoices—since these are books that they have said that they sold sometime in the past. So, you ALWAYS know exactly what they owe you. Life is good. :-)

 

 

 

Effect on Inventory, Inventory Value and COGS

In both of these scenarios, the shipped items will no longer be available in local inventory for sale to other customers. The “Available Inventory Status” report shows what you have in each warehouse location. So, items from the “Transfer” scenario will appear in this report, but will not be available for sale unless you specifically select to ship out of that warehouse location.

There is a similar “Consignment Inventory Status” report that will list the books that are still in inventory at Consignment locations. This distinction of “Consignment” inventory versus “Available” inventory at another warehouse is very fine. It’s there because the consignment invoice was developed long ago and continues to be used by many PubAssist users; but there is really not much difference between the two.

In both reports, the approximate cost will be based on the quantities reported. The COGS report is similar, but based on inventory that has been “Released” or sold.

Hope that helps,

Ron