Definition:
A bill-and-hold sale is a type of sales arrangement where a seller ships goods to a buyer but holds onto the goods until the buyer is ready to take possession. The seller invoices the buyer for the goods at the time of shipment, even though the buyer doesn’t take physical possession.
Key characteristics of bill-and-hold sales:
- Shipment and possession: Goods are shipped to the buyer, but the buyer doesn’t take possession until later.
- Invoicing: The seller invoices the buyer at the time of shipment.
- Revenue recognition: The revenue from the sale is typically recognized at the time of shipment, even if the buyer doesn’t take possession.
- Risk of ownership: The risk of ownership generally transfers to the buyer at the time of shipment.
- Documentation: To be recognized as a bill-and-hold sale, there must be evidence of a valid sales agreement, physical separation of the goods from the seller’s inventory, and the buyer’s acceptance of title to the goods.
Why are bill-and-hold sales used?
- Inventory management: Bill-and-hold sales can help sellers manage their inventory levels by shipping goods to buyers before they are ready to take possession.
- Customer convenience: They can provide convenience to buyers by allowing them to take possession of goods at a time that is convenient for them.
- Revenue recognition: Bill-and-hold sales can allow sellers to recognize revenue earlier than they would under traditional sales arrangements.
However, it’s important to note that bill-and-hold sales can be subject to scrutiny by tax authorities, and they should be structured carefully to avoid legal and tax implications.
In essence, a bill-and-hold sale is a sales arrangement where a seller ships goods to a buyer but holds onto the goods until the buyer is ready to take possession.
