What Is Bill and Hold?

A bill and hold is a type of sales arrangement that enables payment ahead of the delivery of the item. It constitutes a sales arrangement in which a seller of a product bills a customer for 🦹the product upfront but does not ship the product until a later date.

For a transfer of ownership to occur and the product to be sent out, certai♏n conditions must be met. These conditions include payment for the goods, that the goods be segregated from all other similar goods by the seller, and that the goods be finished and ready for use.

Understanding Bill and Hold

澳洲幸运5官方开奖结果体彩网:The bill and hold arrangement may be beneficial for both the buyer and the seller, but great care must be taken by both parties to ensure that all of the criteria are met. If the arrangement does not meet all of the stated criteria, there will be no transfer of ownership. This means that revenue can't be recognized by the seller, and no assets or inventory can be recorded by the buyer r꧙elated to this transaction.

There have been many scandals surrounding a bill and hold arrangement in the corporate ﷽world, and care must be taken when analyzing this type of financial shenanigans.

Bill and Hold Example

A classic example is Sunbeam’s ploy in November of 1996. To boost sales during CEO Al Dunlap’s “turnaround year,” Sunbeam convinced retailers to buy gas grills a full six months before they were needed—not a bad move, if you want to ex🧸tend the seasonal nature of gas grill sales.

In exchange for big discounts, retailers gladly purchased merchandise they wouldn’t receive until months later and still wouldn't have to pay for until another six months after being🤡 . To make the arrangement even sweeter, Sunbeam agreed to store the grills in leased t🉐hird-party warehouses until customers requested them.

Sunbeam initially booked the sales and profits from all $35 million in bill and hold transactions. However, in response to questions raised by the company's auditor, Sunbeam soon reversed a whopping $29 million of the $35 million in , conceding it was recognized too quickly and shifting the sales to future quarters. Deceptive business moves and subsequent accounting treatments like this have earned these techniques the moniker “stuffing the channel.”