Consignment Accounting

Accepting inventory that you pay for after it has sold.

 

Selling things on consignment can increase your income without the risks of owned inventory. But with less risk comes less reward, so you can expect to pay more for the item and your total profit is often reduced.

The actual percentage you receive depends on what type of product you are taking on consignment and the value of that item and the popularity of the person who is giving you the item on consignment. In addition to the actual percentage, there is also the consideration of whether or not discounts are included in the calculation.

Much of the consignment inventory in Artisan is some form of Art. Art typically has a 60% consignment cost. Which means that the consignor (the person who owns the inventory) receives 60% of the revenue. The revenue is paid by the Consignee, which is the store.

It is a great responsibility for you to accept merchandise on consignment. It is critical that you keep accurate records and have processes in place. Your reputation can dramatically affect your ability to receive consignment merchandise. This is where Artisan POS comes to the rescue, but please don’t think that everything is done for you automatically. It is very crucial for you to follow some procedures. This article will outline some of the standard procedures and provide you with the best practices for working with Artisan.

Artisan has been working with consignment inventory for a very long time, at least 20 years.

 

Assumptions:

  1. For the sake of this discussion, we are going to use a typical example that occurs with Artisan. Although there are many other types of inventory Artisan can handle, our discussion is going to consider the case of art being placed on consignment for a gallery.
  2. If you have a Consignment Mall or Antique Mall, then this article is not for you. Please call for assistance if this is your situation. We are working on the article for that.

 

Purchase Orders vs. Receiving Logs:

The single most important tracking detail you need to know is exactly what inventory you are taking on consignment and when and where it was received. Additionally, it may be prudent to note the condition of the inventory if there is any obvious damage.

Using our assumption that for this discussion we are using an Art Gallery, when the art is received usually the artist will have an inventory list and the gallery signs receipt of that inventory. Hopefully, both parties have a copy of this signed receipt. Then the artist goes on their way and waits for a check.

The gallery would then either make a Purchase Order for the items or receive them into inventory without a PO.

We highly recommend that you literally take 5 minutes and make a PO instead of just receiving the items without a PO because this is a better record of what actually occurred and it offers you the ability to note the condition of the art on the PO on a note line below the description of the item. Unfortunately, most of our galleries don’t take this extra step because they think of the PO only as a way to procure owned inventory. In the consignment case, it is often the Artist who decides what they want to put on consignment, but certainly, there are situations where the Artisan treats the transaction more like wholesale and will deliver what the gallery orders.

If you receive the art without a PO, then you must rely on the Receiving Report which isn’t as flexible when handling multiple lots and there is no good way to put in notes. However you can filter the Receiving Report by the vendor, and only include consignment items, so it is certainly a viable alternative. Notes would have to be put in the item record, but that only works when you only have one of each item. Speaking of which, Artisan is designed to handle multiple units of the same thing.

In either case, you first have to first create the item records. [PRO TIP] By the way, you can do this right from the PO screen and then the items are put on the PO without any additional effort. Don’t forget that you can use the Alt-F3 command to copy an existing record and then just change the things that are different.

 

Step 1: Vendor Record

The very first thing that you must do is to create a vendor record for the artist (or vendor).
Click on the Vendors at the top and then F3 to add a new vendor.

 

(Click on the Images to Enlarge)

Now click on the Pricing & Consignment Tab

Now, set the consignment vendor and your consignment split. This split is the percentage that you will pay the consignor (your cost).

 

Step 2: Purchase Order & New Item Record

Now click on the New PO icon and select your new Artist / Vendor

 

Now click OK or choose Blank PO.

Press F2 to search for an Item Search

Now F3 to Add A New Record (Item)

Notice that we changed the Item Record Screen Options to NOT show the Manufacturer field for this example.

 

Notice that in our NEW item record, Artisan has automatically selected both the Vendor and the Category. Also notice that the Consignment Settings are also set for us from the Vendor Record.

 

Now complete the rest of the details, like Description, Retail Price, and Vendor’s P/N.
Leave the Qty On Hand to zero.

Note that the retail price is often determined by the Artist. You can see that the cost has been calculated for you.

There are other consignment cost arrangements that you may encounter. Sometimes the Artisan wants a fixed cost and leaves it to the gallery to set the price. Sometimes the artist is willing to discount the retail price and accept a reduced cost for the art, especially if the art has not sold for a long period of time.

 

Sometimes just this one item does not fit the normal consignment model that is in the vendor record.

You can un-check the box for Use Consignment Settings from Vendor and then change just this item to whatever you need.

 

Step 3: Adding the Item to the PO

Now after we have saved the Item Record, it is placed on the PO for us.

 

Not to add the 2nd item is a bit easier. Now we have “Ocean Pelican” to add.

Press F2 for Item Search

Perhaps your number scheme is Vendor + 4 digits. If you type in WS in the search box, then it will show the item you just created. Notice that it is highlighted in blue. Using the up and down arrows you can highlight the item that is most like our new “Ocean Pelican” item.

Now press Alt-F3 to COPY the “Ocean Osprey”.

 

Notice that the “Ocean Osprey” his highlighted. You can now just start typing without any clicking. Type “Ocean Pelican”. Alternatively, you could just double click over “Osprey” and just type “Pelican”.

If the price of the two items is the same, then you can just click Save and you will automatically get a new item code “WS0002” for this new item and it will put that item on the PO for you. Or if you need to change the price or anything else, do so before you press save. Of course, you can also edit the item after it is on the PO by clicking on the Edit Item button.

Enter the Qty of 1.

In this case, we forgot to enter in the Vendor’s P/N. We can type it on the PO and the Item Record will also get updated.

So just tab over to the Vend P/N field and type 1705.

Repeat Step 3 as needed to until you enter all your new items. But you can Save the PO and come back to it if necessary. Make sure you Save the PO frequently if it is a long one, just like you might frequently save a Word Document.

Depending on your Printer Assignment settings, after you save the PO it will either print automatically or it will open up a preview. This preview is a great opportunity to review and compare with the packing slip document that hopefully came with the delivery. Often the artist requires that you sign a list of the items you received. If you are entering the PO ahead of time, then you can review at receiving.

Step 4: Receive the PO

Now click on the Rcv PO icon in the top toolbar.

Choose the PO you just entered by double-clicking or just press enter on the blue-highlighted record.

 

On the next screen, this is your last opportunity to make sure your list is accurate

Click on Receive All and then Process, or you can highlight the individual item and press the plus sign on the numeric keypad to increase the quantity received for that item. Receive All is a shortcut.

Now your items are in inventory and will show up on the Inventory Summary Report under the consignment section. If they don’t then something went wrong.

Click on View Report

They will also show in the Receiving Log and on a Receiving Report. (click to enlarge)

 

Handling a Mix of Consignment vs. Owned inventory from the same vendor.

Artisan gives you a flag in the item record to indicate whether or not that item is consignment, so you can have some items that are on consignment and some that were purchased wholesale, all from the same vendor. You just can have two of the same item and one is consignment and one is owned. You will need to have another item record for this rare case.

However after the items have been sold from consignment, it is not uncommon to start buying that same item wholesale. Just change your item record (after you have no more consignment) to un-check the consignment. Artisan will remember which items were sold on consignment as long as you don’t change the item record before you have closed out on the day you sold the last consignment item.

It is a best practice to look at the consignment cost on the day end reports and make sure that it looks accurate. Better yet, don’t switch your inventory around. Just start a brand new item record for the non-consignment items. Even better, have all two vendor records for the mixed case. Then the vendor for the consignment item, make sure you set the flag for New Items and make sure it is very clear which vendor is which.

 

Step 5: Selling the item.

Gladly there is nothing to do special when selling a consignment item. You can mix consignment and non-consignment items on the same sale or anything else. They are just like normal items on the sales screen.

 

Step 6: Paying the Artist

This is the end of the cycle for the items that have sold. Artisan can help you write the check by exporting a bill due over to QuickBooks. Artisan also produces a nice Consignment Payout Statement to accompany your check.

After the item has sold, you MUST do an End of Day Closeout to post the sale.

[IMPORTANT] At the day-end close out, the details from the item record are re-loaded into the sale. Your item cost may be updated, but more importantly for consignment, the consignment fields are checked. This is important in case you realized after the sale that you haven’t accurately recorded that this item was consignment and it is on the sale as a normal item! Artisan checks for this and as long as you update the item record before you close out, then your consignment will be accurate. This includes the discount sharing model too.

On your day end report, you should see Consignment Sales and a Consignment Cost.

Normally consignment statements are generated on a regular schedule. Most often this schedule is monthly. Some stores and galleries offset the schedule by two weeks to allow for returns, some even have a full month off-set. For Example: If you wanted to pay monthly with a two-week offset, on the 15th of the month run consignment payout for the previous month.

 

Check your Printer Assignments

Before we head off in to printing statements, let check a few settings first.

From the GO PULL-DOWN menu, choose Device Configuration -> Printers -> Printer Assignments

Check off the Preview option for Consignment Statements

 

 

When we are running a test for the first few or if you want to email instead of print, you can use the Preview option.
There are also options on what things print on your statement. It can even be completely customized if you want.

Now the good stuff…

From the Main Menu -> Accounting -> Consignment Accounting -> Print Consignment Statements

 

 

For now, let’s just choose One Vendor.

 

 

[PRO TIP] The vendor’s that are listed on the pull-down list are the vendors with Consignment Vendor? = Yes

 

 

Step 7: Inventory Adjustments, Shrinkage, Donations, Destroyed, Incorrect Counting

In a perfect world, we would always keep an accurate count of the inventory we have, especially for consignment. However, we don’t. In order to fix things in Artisan, you can enter an inventory adjustment. Sometimes this adjustment should be on the consignment statement and sometimes it shouldn’t. Let’s start with a Donation case. From either the sales screen or making an adjustment in the item record, you can indicate that inventory has been donated. Should this donation be on the consignment payout statement? Yes! And so it will be. The same is true for Damages and Internal Use.

It is NOT true for inventory corrections, and here’s why. Let’s say that you didn’t accurately count the inventory you just received and you said you have 8 when you only have 7. When you figure this out and you reduce your inventory, Artisan wants to know why. If you say Correction for Incorrect Count, then you will NOT see the reduction on the Consignment Payout Statement.

So to summarize when actions will be on the consignment statement and when the will not.

  1. Anytime you make a Sale or Return
  2. Anytime you reduce inventory for Shrinkage (Correction Based on Physical Count), Donation, Internal Use, or Destroyed.

Inventory changes that do NOT appear on the statement.

  1. Return to Vendor — because you don’t want to pay them for something they are taking back.
  2. Misc Adjustment — there should be a way to make a legitimate adjustment that doesn’t report to the vendor.

 

Correcting Mistakes

If you do a Donation or Internal Use by the Sales Screen, these can be recalled and voided. However, receiving and adjustments made through the item record can not. Incorrect receiving should be made by either receiving more or by Return To Vendor. Incorrect adjustments in the item record are harder to void and erase. Some corrections will need to be manually adjusted on the Consignment Statement itself. Most of the time this isn’t necessary if you have Best Practices in place.

By far the biggest mistake that we see is that items are not marked consignment as they should be. That is why it is very important to run Inventory Summary reports and confirm your inventory is correctly identified as a consignment. This is also why we go and check this status at day end in case you realize the mistake during or after the sale. Then after the customer leaves, it gets corrected in the item record. Then when the day end occurs, the consignment sales will get updated too.

 

 

Physical Inventory Counting

Accepting Physical Counts will adjust items with Shrinkage when you are short. If you later find the item, then it will still be on the Payout Statement, even if you receive another one. Artisan doesn’t know and errors on the side of the vendor. It is best to take care during the review process of consignment items during a physical count. You should adjust these manually before accepting counts otherwise you may have to manually adjust the Payout Statement.

 

Step 8: Reprint & Un-posting

You can reprint statements, un-post statements, and then re-do statements as needed. In order to reprint statements, you must know what day you posted those statements for. So May 31st for example.

 

Thanks for reading. Please don’t hesitate to reach out to the support team if you have any questions.