Some firms choose to use a method of ordering merchandise in which the Client pays the Vendor directly for the ordered merchandise. Typically, the design firm then charges the Client a fee for services but does not charge the Client for the actual Product. Design Manager does not have information on the laws of all fifty states and, therefore, can neither recommend nor discourage this practice. Described below is a method that would allow this practice in Design Manager. This article has a list of considerations that should be reviewed before deciding whether this method of doing business will work for your company.
For these Projects, the Invoice "Pricing" column on the Project Advanced/Mark-up should be set so that ALL Component Types are designated as "Always Actual" (meaning the Invoice Price to the client is based upon the Actual Cost recorded via Vendor Invoices), EXCEPT the Design Fee Component Type which should be set to "Always Proposal". To make these changes, follow the steps below:
1. Go to the desired Project.
2. Click on the Settings tab.
3. Click on Advanced/Mark-up button.
4. Go to the Invoice tab.
5. Set every Component Type to "Always Actual" under the Pricing column, except for the Design Fee Component Type, which should be set to "Always Proposal".
6. Click on Save.
After changing these settings, you may create Proposals and Purchase Orders as usual. However, you must not enter into Design Manager any monies received from the Client that are going directly to the Vendor. If the Client is paying the Vendor directly then this money should NOT appear on your books so do not enter it into Design Manager in any manner.
This system works because you are not getting charged/billed for any merchandise; therefore the price for the actual Items that you present to the Client on the Invoice will be zero. Only your Fee will be billed to the Client. If there should be a case in which the Vendor DOES expect YOU to pay rather than the Client, then this charge will automatically be passed through to the Client and will appear on the Client's Invoice.
In summation, these pricing settings tell Design Manager to invoice the Client only for merchandise or services for which you have been charged and the design fee that was agreed upon on the Proposal or contract.
Some Considerations:
There will be a bit more record-keeping if you want to keep track of what is happening between the Client and the Vendor. Although Design Manager will track what is happening between you and the Vendor, there is no mechanism in Design Manager to specifically track or report on the activities that occur between the Client and the Vendor
The Vendor may be unhappy to have Clients purchasing merchandise under your account number since the Client has no account with the Vendor. You may want to check with the Vendor to see if this is an issue
The Vendor may not charge the Client sales tax. This situation causes two problems. First, the Client may be purchasing using YOUR sales tax exemption number which may not be legal. Second, the Client is obligated to pay "use tax" on the purchases if the Vendor has not charged sales tax. If a sales tax audit occurs and theCclient has NOT paid his use tax obligation, you may find yourself responsible for the sales tax
In general, transferring money directly between Client and Vendor complicates the accounting if you were to be audited for any reason.
Suggestions on how to track a Client's payments to the Vendor if the company is making the payments using the Client's credit card:
We highly suggest that you do NOT enter any Deposits to the Vendor or Invoices from the Vendor that the Client is paying directly even if you are paying using their credit card. Doing so will result in your Company's General Ledger Accounts being affected; specifically the WIP or COGS accounts used for the Vendor Invoices on Purchase Orders. In order to keep track of these payments, we suggest using one of the User Defined Dates provided in the program. Rename one of the User Date fields to "Paid Vendor".
To rename this field, follow the steps below:
1. Go to Settings on the Left Side Menu.
2. Click on Workflow Settings and go to the General tab.
3. Under Options, rename User Date 2 Title to "Paid Vendor".
4. Click Save when finished making changes.
Each time the client pays a Vendor Invoice, follow the steps below to keep track of each payment:
1. Go to the Purchase Orders tab in the Project.
2. Select the Purchase Order paid for and select Modify Status on the Actions drop-down in the upper right.
3. On the Modify Status page, click on the Update All box on the right.
4. In the Paid Vendor field (User Date 2 field), enter the date the Client made the payment.
5. When finished making edits, click Ok to save.
6. Click Update in the upper right or bottom of the Modify Status page.
By following these steps, you can keep track of each PO or even each Component that has been paid to the Vendor already.
