Consignment Wholesalers & Distributors

Wholesalers and distributors are important in any business, but they are particularly important in the book industry. They can be characterized in different ways, but from an accounting standpoint, they are broken down into one of two basic categories depending upon on how they make payments. One category is made up of wholesalers and distributors who order products from you with the understanding that they will pay you for the products within 30, 60 or 90-days. For such wholesalers and distributors, you simply issue invoices and bill them like you would any other customer.

The second category of wholesalers and distributors, however, order items from you on a consignment basis. That means that you supply them with products, but they don't pay you until they actually sell the products. This section in Help looks closely at how to work with such distributors which we'll refer to here as consignment wholesalers and distributors.

Once you provide a consignment wholesaler or distributor with items, they will periodically send you reports itemizing which products have been sold. They will also indicate returns, damaged goods, and promotional items that they send to sales representatives to help sell your products. After reporting that they've sold some of your items, it may be one or more months before you are paid, since consignment distributors often will not send you a check until they receive payment from their customers.

It can get confusing at times, and frequently small publishers find themselves at the mercy of reports provided by the distributors. We found ourselves in that situation, and to help monitor of our distributor's sales activity, we develop a tracking system which is built into AnyOrder.

Here's how to use it. Let's say a consignment distributor orders 500 of one of your titles. Go into the Customer Information Database and assign the distributor a customer number. Fill in the rest of the information on the Customer Information Screen, making sure that you check the "Consignment" box. When you ship the items to the distributor, make out an invoice. Under the S-Column in the Item Area, enter a "C" for consignment. Since the distributor owes nothing at this point, the total due is 0, but the invoice provides a record for you and serves as a notice to the distributor that you are placing 500 items under their care.

Sales codes are entered in the "S" column in the Item Area. The "S" sales code means regular sale. In this case, however, a "C" sales code has been used. That means this item has been placed on connsignment.

The 500 items that have been sent to the distributor are still part of your inventory, but it is inventory which is warehoused in a different location. In other words, you have moved 500 items to a "consignment site." The term "consignment site" used in Inventory Reports to indicate locations such as distributor warehouses or retail outlets where your consigned products are located.

Some consignment distributors charge a storage fee to keep your items in the warehouse--or they may charge a fee for services they provide. Often those fees are subtracted from the income they receive from selling your items. If that's the situation, when you are charged the fees, enter them on an invoice as you would enter a product:

Make out an invoice for the distributor. In the Item Area of the invoice, enter the following:

4) if the fees are associated with a certain product, type in the catalog number of the product;

5) enter the letter "F" in the S-Column ("F" is the Sale Type Code for fees); and finally,

6) type-in "Fees," again, in the PO Number blank. (Since PO Number appears on billing statements, this will help make the statement more understandable for you and the customer.)

The amount you are paying in fees (and which are removed from your product sales) will be itemize when AnyOrder generates sales reports. That's helpful information. The fees may be reasonable, but in some cases you may find that fee charges will eat up much of your income. By having this feature built into AnyOrder you are in a better position to evaluate the distributor's services and the cost of those services.

Note that if you include a catalog number when you make out an invoice for the fees, the fees associated with that product will be itemized when you run an Inventory Report.

The distributor will issue regular reports. (If regular reports are not forthcoming, then you should re-evaluate whether you want to continue to work with the distributor.) The reports will list how many items are sold, the number of returns, the number of damages and the number of promotional copies used to promote the book.

When you receive a report, enter the reported sales information on one invoice. Normally, for clarity on billing statements, it's good procedure to record returns and sales on separate invoices. With consignment distributors, however, putting everything on one invoice gives you a way of checking their calculations with yours. (The one item that is best left on its own is the fee charge. Enter the fee charge, if there is one, on its own invoice.)

Here's an example. Let's say that the distributor reports: 45 items sold, 5 returns, and 2 promotional copies sent to sales representatives. You would make out an invoice, and in the Item Area, list 45 items, using the "S" code for regular sales. Five items would be listed using the "R" code for returned items, and 2 items using the "P" code for promotional Items. Make sure that "Consignment Item?" is checked. (It will be checked automatically if you've created a customer number for the distributor.

The total due on the invoice should correspond with the distributor's figures. (For more on making AnyOrder's figures correspond with the distributor's, see the section below). By making out your own invoices each time the distributor sends you a report, you can keep close track of the distributor's sales and have a complete record of what you are owed. But that' not all. You also have the necessary information to calculate monthly or yearly sales figures for tax and accounting purposes.

If the distributor requests more products, make out another invoice with the additional products listed with a "C" code. If at some point, you decided to take back some the products, make out an invoice and use the "T" code for Take Back of consignment items.

All consignment activity (movement of inventory, sales, returns, damages, and promos) will be summarized on the Inventory Report provided by AnyOrder. The Inventory Report gives you the ability to identify discrepancies in the information provided by the distributor. You can also keep track when the distributor is falling behind in payments, and generate billing statements when needed.

Note also that the Level 6 and 7 programs include a special consignment report ("Consignment Sales Activity Report"). This report is very helpful if you are working with several stores and distributors, providing you with an itemized breakdown of activity at each consigned location.

Note: The "D" code (for damages) should only be used for products the distributor has originally reported sold, and then later reports that the items have been damaged. In other words, whenever you use the "D" code for a product, it also should have been recorded with an "S" code. For more information, see Damaged Items.

A consignment distributor can greatly help get your products out to consumers, but a profitable relationship with a distributor depends on vigilance on your part. AnyOrder provides you with the tools to remain vigilant and keep distributors working for you and not against you.

Some distributors provide you with a report and a payment that matches the report. That's the best situation. You make out an invoice, and mark it paid using AnyOrder's Mark Paid feature. (If you need to make out two or more invoices to record the distributor's sales figures, use the Mark Paid feature which allows you to pay off several invoices using one payment.)

Unfortunately, it isn't always that easy. Some distributors send you a report but won't pay you until they receive payment from their customers. Thus, payments for products sold on the first report may trickle in over a period of time. Some of the later payments for the first report may be added to payments coming in from the second report or third report. It can be become a nightmare.

If you have a situation like this, we suggest that you talk with the distributor's accounting department. Ask them to issue you a second report that accompanies each payment. The second report (let's call it the "payment accounting report") should provide you with an accounting of what's included in the payment. If they send you a check for $1,500, you want to know what that $1,500 includes. That means you need know: 1) How many items were sold and at what amount; 2) How many items were returned and what amount; And 3) How much the distributor has they removed for fees.

If they will provide you with a "payment report," then that's the information that you'll want to enter on AnyOrder's invoices. (You'll also need to add in any promotional (or damaged) copies so that your inventory records will be appropriately adjusted. But you won't need to have those listed on the payment accounting report, you can pull those from the overview report they send you.)

This system is far better than one report from an accountability standpoint. If your distributor keeps good items, they should know what goes into your payment, and they should be able to make this information available to you. It provides better tracking on your part. With a payment report you have one more piece of information which allows you to keep tabs on them. The payment report is also particularly helpful if you are paying royalties based on cash received (a common way of paying royalties). You'll have (and AnyOrder will have) the information necessary to appropriately calculate what you owe your royalty holders. Without such a payment report, it is very difficult, and in some situations impossible, to put together an accurate royalty account report. Finally -- and you'll need to check with your tax accountant on this -- but a payment report may be advantageous from a tax standpoint.

If the distributor provides you with two reports -- one showing all sales activity and one showing payment activity -- you'll want to do some additional tracking in addition to AnyOrder. Set up a spreadsheet (in Excel or another spreadsheet program) and enter a summary of the "all sales" activity report. When you receive the "payment account report," enter the payment information on the same spreadsheet, subtracting the quantities and amounts from the "all sales" amounts. This will allow you to monitor sales and payments.

If there is no way to get a "payment report" from the distributor, it will be difficult to match sales with payments. However, you'll still be able to use AnyOrder to record and track the distributor's sales. When you receive the report, make out one or more invoices and include on the invoices the number of items sold, returned and given away (promos). If you need to make out several invoices, make sure that the sum of those invoices is exactly the same as the total due on the distributor's report (see below: "Making AnyOrder's Figures Correspond With the Distributor's").

As the money comes in from the distributor, manually enter the amounts in the Payment Box on the Main Invoice Screen. The payment amounts, of course, won't be the same as the total due on the invoices. You'll probably also have a number of invoices with no payments recorded on them. That really doesn't matter. You're just using the Payment Box as a place to record the distributor's payments. While invoices and payments won't match up, you'll still have the proper information for sales and inventory reports. Thus, you will be able to track your sales and inventory. You'll also be able to produce a good summary of the distributor's sales activity by running a billing statement. You'll find that it's very useful to do this. By generating a statement and reviewing it on a monthly basis, you'll be to determine if distributor is falling behind on its payments to you.

If you pay royalties on the basis of cash received, however, you'll have a problem. You need to know which items and which invoices have been paid, and without a payment report, you really don't have that information. Your best bet is to change your royalty accounting system so that you pay royalty holders on an accrual basis. Otherwise, you'll have to guess which invoices have been paid. This guessing game would require that you page through the distributor's invoices, and mark those invoices paid which you think have been fully paid. If you do things this way, you'll need to use the fourth option on the Mark Paid dialog box which allows you to mark invoices paid without entering an amount.

Fees are always considered negative values. In other words, you owe the distributor and the distributor will remove it from your payment. Thus fees always appear as a negative number on the invoice. If you run into the unusual situation where a distributor gives you a credit for fees, there is a work-around that will internally direct AnyOrder to change it to a positive number. Here's how:

Type in the fee amount and the "F" sales code in the Item Area. To make a fee a positive value, you'll need to extend the Item Area to the right all the way. That's done by clicking on the right hand arrow twice so that you can see the "Discounted Total" column in the Item Area. Just to the right of the "Discounted Total" column is a thin column that is used to indicate pricing level. To indicate a positive Fee value, type in a "9" in the pricing level column.

Now...it may seem like the value remains a negative value. Outwardly, the minus signs don't disappear but internally AnyOrder will handle the amount as a positive value. When you run an inventory and you look at "Total Fees" on the report, you'll see that anything that you've indicated with a "9" has been appropriately adjusted.

This method will provide you with the correct totals when you run sales totals, inventory reports, and if you use the new option features in Royalty Functions. There is one caveat, however, if you use the new feature in Royalty Functions and you run a report for a period of time whereby the total of all fees come out to be positive. (This would be highly, highly unlikely, but, just in case, you should know the limitations. The program always assumes that fees are negative amounts. It's quite all right to have a number of positive fee value adjustments here and there as long as the total still comes out to be a negative. However, if you have so many positive fee values that the total fees comes out to be positive, then, in that rare situation, you won't be able to use the new "Remove Fees" option in Royalty Functions. If you want to add fees (in this case you would be adding fees) to the royalty calculation, you would need to do it manually. Once again this is a very, very unusual situation, and once more, it's only important if you use the option where royalty calculations take in account the amount of fees paid.

You want the total on the invoice (or invoices) that you've made out to match the total on the distributor's report. Let's use a specific example. Let's say that you receive a report from a distributor for the month of May with the following information:

This information needs to entered into AnyOrder. So you make out an invoice and enter:

AnyOrder figures the total as $12,704.10. But, you need to adjust the total so it is $6,304.95 to match the distributor's report. To do that, you use the Calculate Discount feature (PRODUCT TOOLS >> CALCULATE DISCOUNT).

If you have several products to enter, you'll use the function which allows you to "Calculate the Discount of an Individual Product."

If you have used AnyOrder Levels 1, 2 or 3, the discount field was only accurate to one decimal place. However, with AnyOrder Level 4 and higher, Item Discounts are precise to seven places and AnyOrder will calculate the discount so the total will exactly match the $6,304.95.