Consignment inventory is inventory which is owned by one business, but sold by another. The first business owns the inventory up until the second business sells it, at which point the second business pays for the items. It is a way for businesses to stock and sell items without purchasing them.
It is possible for a business to both purchase inventory on consignment and sell inventory on consignment.
This article will describe how to use Brightpearl to sell consignment stock to customers. To learn how to handle buying consignment inventory from vendors, see this article.
Selling consignment inventory to customers
Inventory sent to customers on consignment is generally inventory that you own or manufacture.
There are two stages to selling consignment inventory to customers:
A. Setting up and reserving inventory
The first stage is done when sending inventory to your customer.
- Create a sales order for the customer you are sending the consignment inventory to.
Create a sales order for the customer. You may wish to set up a new sales order status, called 'Consignment', to assign to the order. Doing so will allow you to both easily report on your consignment orders and exclude them from any other relevant reports.Learn more about creating new sales order statuses.
- Add the items you are sending to the sales order.
Once the sales order has been created, add the items you are sending to your customer to the sales order. The quantities must be correct, but the prices can either be set to the price you are charging your customer, or to zero, depending on your reporting needs.
- Allocate the inventory to the sales order, but do not mark it as shipped.
Once all the inventory has been added to the sales order, allocate the inventory. However, do not mark the inventory as shipped, as you still own it and it should still be included in your inventory balance.
Tip: You can create a new warehouse for consignment stock. When you send consignment stock to your customers, transfer stock from the relevant warehouse to the consignment warehouse, then proceed with the steps above as normal, making sure to assign the sale to the consignment warehouse. This will allow you to filter your inventory reports on your consignment stock. Learn about creating new warehouses here.
B. When items are sold
Typically, your customer will send you a periodic statement detailing what items have sold, usually on a monthly basis. The second stage concerns what to do when receiving these statements.
- Create a second sales order for the consignment customer and add the items that were sold to the sales order.
Create a second sale for the customer the consignment items were sent to and add the items on the statement, making sure the quantities and the prices are correct. Save the order once all of the items have been added to it.
- Remove those items from the consignment order.
Go back into the consignment order created in the first stage, and remove all the units which were sold. This is to ensure that you're not listing too many products as being out on consignment.
- Mark the order as shipped, and invoice it.
Go back into the first order, allocate all the stock and mark the order as shipped. Then, invoice the order and email the invoice to the customer as normal. This will remove the inventory from stock and create the necessary accounting on the income statement and balance sheet.Note: Make sure the items are shipped from the correct warehouse!
Tip: An alternative method for creating the second sales order is to unallocate all inventory from the consignment order, then split the inventory that sold to a back order. This will create the new order and remove inventory from the old order in one go. Just remember to reallocate the consignment order afterwards, and to ensure your quantities are correct!
Accounting for consignment inventory
When selling consignment inventory to customers, accounting is only posted during the second stage when the second sales order is invoiced, shipped and paid.
There is no difference between the accounting created during this stage and the accounting created when making any other sale.
This video walks you through selling consignment inventory to customers.