Consignment sales is an arrangement in which the owner of goods (also called consignor) sends them to the customer locations but remains the owner of the goods. Customers (also called consignees) keep the consignment stock at their own warehouses and can sell the goods to end customers or consume the goods within their own companies.
The consignee needs to pay for the goods to the owner when the goods are sold or consumed. Any leftover stock that isn't sold should be returned to the owner after the agreed arrangement expires. The responsibility for the goods returned by end customers is also on the consignor.
The advantages of such arrangement for consignor include the following: the company does not need to set up a retail storefront to sell specific goods and saves on costs of holding this inventory at their warehouses.
For consignee, the main advantage is probably in minimizing the risks: the consignee does not need to pay for goods until the goods are sold and can return the unsold goods at no cost.
Enabling the functionality
To enable this functionality, select the Issue Goods for Consignment Sales option on the Administration > Settings > Sales form. Also, if you are going to use discounts in such sales, select the Enable Discounts and Markups in Consignment Sales option on the same form.
Moving goods to a consignee
To record the goods moved to the consignee location, create and post the following documents.
Invoice (Transfer to Consignment)
To record the goods moved to the consignee, you need to create an Invoice with the Transfer to Consignment transaction type. Specify the consignee, the contract created for consignment sales, create a list of items with the quantities and prices, verify the discounts if applicable.
For more information, refer to Invoices (Transfer to Consignment). The document generates no GL transactions (journal entries).
Goods Dispatch Note
If the goods intended for consignment sales are stocked at warehouse for which the Separate Inventory and Financial Documents option is selected on the Administration > Settings > Purchasing and Warehouses form. For more information, refer to Goods Dispatch Notes.
Prepayment
Prepayments (if received from consignees) can be processed as usually, by creating Bank Receipts or recording Cheques Received. Then, when the entity is billed for commission, a prepayment can be applied to the Consignee Report or the Invoice Received (commission).
Recording the consignment sales
On the contract expiration, the entity creates the following documents.
Invoice Received
For this document, you need to select the Return from Consignee transaction type. The document registers unsold goods, transferred from the consignee back to the entity. The document is created based on the data received from the consignee. The document generates no GL transactions (journal entries). For more information, refer to Invoice Received (Return from Consignee).
Goods Receipt Note
If the unsold goods are transferred from consignee to the warehouse for which the Separate Inventory and Financial Documents option is selected on the Administration > Settings > Purchasing and Warehouses form, then you also need to create a Goods Receipt Note. For more information, refer to Goods Receipt Notes.
Consignee Report
This document contains information on the goods sold by the consignee and the commission due on these sales.
On the Inventory tab of the document, the list of goods sold can be created based on the data directly received from the consignee – you can import the list of goods with all the details from an Excel file. You can include in the Consignee Report the information on end customers if this information is available in the actual sales report received from the consignee. For this, before you start importing of the data, you can select the Show Details by Customer option on the Inventory tab of the Consignee Report.
Alternatively, you can populate the list of goods sold from Invoice (Transfer to Consignment) and Invoice Received (Return from Consignee). For this, you can click the Fill by Balances button on the Inventory tab.
On the Commissions tab, you can provide information about commission. The commission can be deducted from the sales total or can be paid separately; it can be charged as a flat amount or percentage of sales. Also, you need to allocate the commission amount to the items in the Commission column on the Inventory tab – the system checks that the sum of the amounts in the Commission column is equal to the total commission amount.
From this document, you can generate a document that confirms the receiving of the resulting sales amount: Cheque Received, Cash Receipt, or Bank Receipt. If the commission is to be paid separately, you can generate a payment of any available type specifically for the commission: Cheque Issued, Cash Payment, or Bank Payment.
The program calculates the output VAT due for the goods sold and input VAT for the commission amount to be paid by the entity. And you also can generate from Consignee Report a Tax Invoice Received for the output VAT levied on the commission and a Tax Invoice that registers the input VAT due on sold items.
For more details, refer to Consignee Reports.
Tax Invoice
This document registers the output VAT for the tax amount due on sold goods. It can be generated from the Consignee Report or created manually.
Tax Invoice Received
This document registers the input VAT for the tax amount due on commission to be paid to consignee. It can be generated from the Consignee Report or created manually.
Recording goods returns
If some goods were returned from end customers through the consignee after the sales had been recorded, commissions paid, you need to create the following documents to register the returned items.
Credit Note (Goods Return)
This document contains the list of returned items with their quantities and prices. You need to indicate that the amount will be considered as an advance payment. For details, refer to Credit Notes (Goods Return and Invoice Correction).
Goods Receipt Note
If the returned goods are transferred from consignee to the warehouse for which the Separate Inventory and Financial Documents option is selected on the Administration > Settings > Purchasing and Warehouses form, then you also need to create a Goods Dispatch Note. For more information, refer to Goods Dispatch Notes.
Tax Credit Note
This document adjusts the output VAT for the tax amount due on returned goods.
It can be generated from the Credit Note or created manually.
Debit Note
This document is created to adjust the amount of commissions. You need to select the Mutual Settlements Adjustment transaction type and on the Documents tab add the Invoice Received or several invoices which lists the commission that were paid to the consignee.
Tax Credit Note Received
This document adjusts the input VAT on commissions that proved partially unearned. It can be generated from the Debit Note or created manually.
Mutual Settlements Adjustment (Customer Debt Assignment)
You can create this document with the Customer Debt Assignment transaction type to adjust the consignee's debt for the amounts of returned goods and overpaid commission.
Using reports for details on items in consignment
The information about the goods transferred for consignment sales is reflected in the reports in the Warehouse module.
The Balance of Transferred Inventory report lists the items transferred to other companies for consignment sales along with items transferred for subcontractor processing and temporary storage at contract warehouses.
The Balance of Transferred Inventory report
The Statement of Transferred Inventory report provides information on changes in the balances of items transferred to other companies for consignment sales along with items transferred for subcontractor processing and temporary storage at contract warehouses.
The Statement of Transferred Inventory report