Consignment is a business arrangement in which a business, also referred to as a consignee, agrees to pay a seller, or consignor, for merchandise after the item sells. Consignment businesses are typically retail stores that specialise in a particular type of consumer product. The business accepts items for sale and agrees to pay the seller a percentage of the proceeds if and when the goods do sell. In this article we will look at how consignor/consignee scenarios can be handled in DEAR.
Scenario 1: For consignment sales, ideally, I want to be able to track the stock I've sent to my consignment clients and perhaps invoice them fortnightly or monthly (to reduce my paper work and admin) for the stock they have consumed. Also, this enables me to keep track of the inventory I need to replenish at their site, when it is consumed.
- Create a separate location for every consignment client (Settings → Reference Books → Locations and Bins).
- Perform a stock transfer (Inventory → Transfers) to move stock from its current location to the consignment location when the stock is sent to the consignment client.
- Once a month, your consignment clients send you a sales report. Create a sale order and pick the sold stock from the relevant consignment locations.
- To keep track of the inventory used and when to replenish, you can check product availability (Inventory → Product Availability) and sort the report by locations. You can use the Low Stock Reorder or Smart Reordering functions to set reorder points whenever stock falls below a certain level in a consignment location.
Scenario 2: I also need to be able to keep track of my overall stock levels in order to put in purchases for more stock when it runs low. There is a barcode and batch number attached to each item, so the purchase/sale process needs to be able to be robust enough to take volume. This is a government legislation.
This is available now and won't be different with consignment locations. Use the product availability report, but hide the Location column. With regards of volume we don't impose any limitations. However, Xero recommends their software for businesses with 1000 invoices per month max.
Scenario 3: Taking into account the above, I want to be sure that my accounting system (Xero) is able to track the Cost of Goods Sold and Total Inventory on hand, as it is consumed. This is very important, as it affects my operations and GST.
Ideally, I would want to track Inventory at each consignee at the Xero level but since DEAR only syncs one inventory account so I know that is not possible.
Cost of Goods Sold will be copied to Xero every time a shipment is authorised in DEAR. Total SOH will be changed in Xero every time a sale/purchase invoice is authorised. If you have followed the steps in scenario 1 and created a separate location for each consignment client, you can use tracking categories in Xero to export DEAR location to Xero with purchases/sales.
Scenario 1: Can you please send me your recommended method of managing consignment stock that I receive from my suppliers? Typically I would reconcile consignment stock at the end of each month and send a purchase order to my supplier for any stock sold in that period. I would like to invoice my clients for sales of this stock during that period as well.
- Create a separate location for every consignment supplier (Settings → Reference Books → Locations and Bins).
- Create a stock adjustment (Inventory → Stock Adjustment) in every consignment location to put the quantity of the items with notional cost 0.00001.
- Sell items from the consignment locations using the usual sale process.
- Once a month, run the Sale Order Details report (Reports → Sale Order Details) and get list of products sold in each consignment location. Export this list with SKUs, locations and quantities, create CSV files for every supplier. Create Purchase order for every supplier using CSV file.
- Once you get an invoice from the supplier, process the invoice as a normal purchase, in account column select COGS account instead of Inventory account to write off item’s cost.