“Bill and hold” is an agreement where a buyer is billed for goods not yet received, with the products being delivered at a later date. The process requires careful management and compliance with regulations.
“Bill and hold” is a term used to refer to an agreement between a buyer and a seller in which the buyer is billed for goods or services that have not actually been received. The idea is that the products will be delivered to the buyer at an agreed later date. As part of the agreement, the seller agrees to reserve those products for the buyer, provide temporary storage for those products, and execute delivery of the order once payment is received and posted.
A billing and retention arrangement can be illustrated by the example of a company ordering a large number of pencils from a supplier. The buyer may want to pay for the order in the current accounting period, but does not want to take possession of the pens until a later date, possibly due to the need to make room for the pens in a storage area. In this scenario, the seller agrees to process the order and segregate the pencils to fill the order from the rest of their inventory. During this period, the buyer remits payment for the order and the seller records the purchase in accounting accounts receivable. On the date agreed by both parties, the seller sends the pencils to the address provided by the buyer. Upon receipt of the shipped pencils, the order is considered complete by both parties.
While a bill and hold approach can sometimes be beneficial to both buyer and seller, managing the process can require additional effort. Buyers must keep track of anticipated delivery dates, as well as submit payment for goods that have not yet been received. Failing to do so can inflate actual inventory and present a false impression of what resources are actually available for use in various business processes. The seller must also keep track of the amount of inventory that has been committed to the buyer and ensure that they do not use that inventory to fill other backorders.
Along with potential pitfalls, it is important to recognize that the use of a bill and hold agreement is not always viewed favorably by various regulatory agencies, and must be carried out in accordance with very strict requirements. For example, the United States Securities and Exchange Commission does not consider ownership of products to pass from seller to buyer until the buyer is in possession of those products, at which time the buyer may enjoy all rights and responsibilities related to that property This may mean that the buyer must observe certain regulations in terms of accounting for the funds spent on the purchase in order to comply with SEC rules and regulations. In countries where a bill and hold process is most commonly used, both buyers and sellers must manage the associated accounting process so that there is no question about the current status of an order, including whether it has actually been received or not. delivery is still pending.
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