What is the Provisions for Receivables and Missing Actuals

That is the provision for missing actuals for provision, for receivables as we know from a previous section of this course, your standard annual agreements with Amazon are normally deducted monthly from a remittance. And they’re all calculated against the net receipts that Amazon receives from you on the purchase orders they place with you.

The cycle is as follows. Amazon generates a purchase order with you. You ship the purchase order to an Amazon fulfillment center, Amazon receipts, the purchase order and records it in their system as a net receipt. If you have then shipped 20 purchase orders for the month of may, for example, Amazon should have receipted all line items of all 20 purchase orders in the month of may.

And the total will be Amazon’s net receipts. The net receipts are calculated in purchase order value, specifically Amazon’s cost of goods, as opposed to purchase order units. The standard agreements that are calculated on these net receipts. Basic rule, which is normally around 10% of your net receipts for the month freight allowance, which is usually around 5% of your net receipts for the month and damage allowance, which is usually around 2% of your net receipts for the month.

Amazon then calculates an estimate of the total value of purchase order receipts from their cost of goods that they believe they will receive in a given month from you based on your current purchase orders in their system and the purchase orders you have already shipped for the month. In this example, we will use an Amazon calculation of $20,000.

Amazon cost of goods, net receipts, estimated by Amazon for the current month of may, Amazon will then calculate the 10% basic rule, plus 5% freight allowance. Plus 2% damage allowance, which is a total of 17% of the $20,000 that gives them an estimated value of $3,400. That will be due to Amazon. Based on your annual agreements, Amazon will then deduct this $3,400 from one of your remittances with the description provision for receivables and an invoice or identification number for the transaction.

The key point of this is that the deduction will take place within the current month and not the following month. Once all net receipts for the current month have been calculated as the provision for receivables is an estimate of those net receipts for the current month only, for example, Amazon will calculate the provision for receivables in the month of May.

And deducted from one of your remittances in the month of may, but the actual net receipts upon which your annual agreement deductions are based will only be able to be calculated after may has ended and a total finalized within the first week of June.

This is why in the month of June, Amazon will provide a reversal of provision for receivables with the same invoice or identification number. As that of the provision for receivables that was deducted in may and for the same amount that was deducted in may using our example previously, the $3,400 that was deducted from a may remittance as a may provision for receivables will be reversed on a June remittance as a reversal of provision for receivables.

And the actual annual agreement deductions that were calculated on the actual net receipts for may, will then be deducted from a June remittance, but not necessarily the same remittance from which the reversal of provision for receivables was deducted.

For provision, for missing actuals, where there are returns that you did not refund Amazon form. Amazon will generate a debit note on your account for the amount due to them. And normally deduct these from one of your remittances of payment from Amazon to you, let’s say Amazon has negotiated a 15% rebate on all products delivered within a given month.

The month of may, Amazon places, an order, which you fulfill and ship. But when you create the invoice, you don’t include the rebate or refund for the returns. Amazon pays the invoice, but you have now not paid the rebate or refunded Amazon for the returns. After 21 days, Amazon will generate a provision for missing actuals and deduct this from your next remittance from them.