Paid and free supply to subcontractors

Drop Shipping and Direct Supplier Delivery

When I used to run a furniture export business in Bali, I heard from a person who wanted to start up a new business in Japan.

I was fed up with getting inquiries like this so many times.

At the time, I even hated the idea of wanting to open an online shop with no inventory and zero risk, but now dropshipping is firmly established as an affiliate business.

In the business system, this drop-shipping function corresponds to the function of direct shipment to the supplier, and when an order is registered from customer A, information on the order is automatically generated for supplier B, and the actual receipt of the order goes to customer A, not to the company's warehouse.

It is easier to understand if you imagine a trilateral transaction in which the Japanese head office receives an order from the U.S. branch office, the Japanese head office places an order with the Indonesian factory, and the Indonesian factory sends the order directly to the U.S. branch office.

If the ERP system is linked to the ordering and accounting functions, the direct shipment registration of the supplier after the order is registered based on the order registration can be used to register the order.

Since the above four processes are executed together, the following two processes must be executed when a return from a customer occurs, and if only sales returns are made, the inventory will remain in the virtual warehouse for direct shipment where there should be no remaining inventory.

In case of supply from the company's own warehouse

However, the P/O price issued to the subcontractor includes material cost and processing cost only in the case of paid payment and free payment, and processing cost only in the case of free payment.

In the case of revenue recognition of paid supply, the order for materials is registered with the supplier based on the order for materials from the subcontractor. However, there are cases in which the materials from the supplier enter the company's warehouse or are directly sent to the subcontractor.

When materials arrive at the company's warehouse, the same flow of processing is performed for both paid and non-paid supplies: placing an order for subcontract processing, reserving inventory, shipping to the subcontractor, and receiving materials after processing is completed at the subcontractor.

In terms of receipt and payment, the difference between nai-saku and gai-saku is as follows.

Paid supply

In Indonesia too, the management of free payment tends to be ambiguous, so it tends to be properly managed by adding profits to the payment, but if sales are recorded (revenue recognition) at the time of payment

and when you sell the processed product to the customer, the sales will be double-counted (round-trip slapping).

Therefore, at the time of payment, it is recorded as accrued income (receivables), and materials or purchases added at the time of procurement are recorded as minus, not as sales (income plus), and accrued income is transferred to subcontract processing costs when it is bought back after processing.

Free supply -Purchase of services that are wage processing

Plating, stamping, etc. are purchases of services, and since they are free of charge, we issue a purchase order (P/O) for the services without receiving an order from the subcontractor.

In conclusion, the free payment is a transfer of materials, so there is no journalization. In the case of paid supply, materials are sold and bought back with processing wages included, but to avoid double sales, the minus material is recorded as accrued income.