How Exactly Should Re-export Trade Revenue Be Recognized? Come and Share Your Advice!
Resolved
My company has recently become involved in re-export trade, and we are unclear about the recognition of re-export trade revenue. In practice, goods are shipped directly from the supplier to the customer, bypassing our own warehouse. In this scenario, should re-export trade revenue be recognized at the time of contract signing or upon delivery of the goods to the customer? Additionally, what other factors need to be considered for revenue recognition? We hope everyone can share their relevant experience and specific operating methods.
Trade Expert Insights Answers
Re-export trade revenue is generally recognized when the main risks and rewards related to the ownership of the goods are transferred to the buyer. For a company like yours, where goods are shipped directly from the supplier to the customer, revenue can be recognized when the goods cross the ship's rail (if by sea) or are delivered to the first carrier (for other modes of transport), and when payment is expected to be recoverable and related costs can be reliably measured.
Firstly, attention must be paid to contract terms to clarify the timing of goods risk transfer, which is a key basis. Secondly, ensure that relevant shipping documents, such as bills of lading, are obtained to prove that the goods have been delivered. Furthermore, assess the likelihood of collecting payment; if recovery is not expected, revenue should not be recognized even if the goods have been delivered. At the same time, cost accounting must be accurate, including procurement costs, transportation, and related taxes and fees, to accurately calculate profit. In summary, recognizing re-export trade revenue requires careful judgment based on multiple factors.
You can check if sales procedures have been completed. If all procedures with both the customer and supplier are finalized and you can control the right to dispose of the goods, revenue can essentially be recognized.
For re-export trade revenue recognition, the commercial substance of the transaction must be considered. For instance, if there are issues with product quality, revenue recognition might be delayed.
Cash flow is also important. If customer payments have been received and other revenue recognition conditions are met, revenue can be recognized, increasing cash flow.
One also needs to pay attention to any incidents during the goods' transportation, such as force majeure events affecting delivery. In such cases, revenue recognition should wait until the situation is clarified.
You can refer to industry practices to see at what point in time competitors recognize re-export trade revenue in similar situations.
Acceptance clauses in the contract also need attention. If the transaction is only recognized after the customer's successful acceptance, then revenue recognition must wait until acceptance is passed.
If the supplier provides special terms such as a goods quality guarantee, this will also affect revenue recognition and requires careful analysis.
Exchange rate fluctuations also affect re-export trade revenue recognition. The settlement currency and changes in exchange rates must be considered to accurately account for the revenue amount.