Meaning
Operational restructuring transitions a channel relationship from a commission consignment model to a principal buy-sell arrangement. During a buy sell conversion, the principal transfers inventory title and commercial credit risk directly to the distributor upon shipment. The distributor assumes responsibility for local customer invoicing and working capital financing.
Commercial agreements specify the exact date of conversion to mark the division between consignment sales accounting and direct wholesale revenue recognition.
Title Transfer
Consignment inventory held on location undergoes formal legal transfer to the distributor balance sheet. Upon executing a buy sell conversion, the distributor purchases existing stock at agreed wholesale prices rather than holding it on consignment. Physical stock counts establish the precise inventory baseline before billing occurs.
Risk of loss shifts entirely to the buyer once invoice generation completes.
Margin Realization
Wholesale pricing structures replace agency commission payouts following the structural shift. A buy sell conversion allows distributors to set resale prices within contractually agreed boundaries while earning trade margins rather than fixed sales fees. Suppliers benefit from predictable cash flow and reduced administrative overhead in managing end-customer collections.
Trade credit terms expand to accommodate the higher working capital required by the distributor.
Inventory Revaluation
Existing consignment stock pricing undergoes adjustments to align with new wholesale price files. Financial adjustments account for legacy promotional funds and unearned commission accruals during transition. Remaining promotional funds are settled through lump-sum credit notes.
