If you own a trading company or factory, take a pen and paper and recalculate your numbers — because something big happens in most Egyptian and Arab companies that you might be a victim of without knowing. It's called "consignment stock," and it gets recorded as sales when it isn't.
What Exactly Is Consignment Stock?
When your company ships goods to a distributor or retailer on the promise they'll pay when they sell, those goods still belong to you. The distributor takes the goods, stores them, and may or may not sell them. Sometimes they're returned months later — sometimes they sit for years.
In proper accounting, this is not a sale. It's just a physical transfer from your warehouse to another — but legal and financial ownership remains with you.
The Big Trap: Why Does It Get Booked as Sales?
The classic scenario: Your sales manager is EGP 200,000 short of monthly target. Instead of finding new customers, they coordinate with a large distributor (often a friend) and ship goods worth EGP 300,000 as "consignment" with a verbal promise that the distributor will pay once they sell.
Result: Sales manager hits target, takes commission (e.g. EGP 15,000). Owner sees "Monthly Sales 1.5M" — smiles, pays commissions and bonuses.
Reality: Those 300K sit in the distributor's warehouse, no cash hit the company bank, goods may return damaged in 6 months, and the company paid commissions on fake sales.
The Real Damage to Your Company
💸 1. Cash Flow Distortion
Reports say "Revenue 1.5M" but the bank doesn't see it. The gap between "book revenue" and "real cash" widens month by month until the company finds itself borrowing to pay salaries despite "great reports."
📈 2. Strategic Decisions Built on Illusions
When the owner sees strong sales, they decide to:
- Open a new branch
- Lease a bigger warehouse
- Import larger quantities
- Hire more reps
All decisions based on sales that never happened. When distributors return goods (or go bankrupt), the company discovers it expanded on lies.
💼 3. Commissions on Non-Existent Sales
The sales manager took EGP 15K on the 300K deal. Six months later, the distributor returned 200K worth. The owner wants the commission back? "It was a legitimate sale at the time" — and legally, they may be right.
🧾 4. Taxes on Phantom Sales
If the invoice was recorded as a "sale," the company paid VAT and income tax on the revenue. When the goods return, it's very hard to reverse the tax. Your company is paying tax on money that never entered the cashbox.
📦 5. Inflated Inventory & Silent Bankruptcy
Consigned goods disappear from your inventory reports (because they "sold"), so you think you have less stock than you really do. You import again. The distributor's warehouse is overflowing too. After a year, you discover you have 3M EGP of stock sitting in warehouses you don't own.
Why Is This So Widespread in Egypt and the Arab World?
1. Monthly Target Pressure
Most companies measure their sales manager on invoice numbers, not on actual cash collected. Targets must be hit by month-end, even on paper.
2. Personal Relationships with Dealers
The sales manager may be a friend or (secret) partner with the distributor. The distributor gets free inventory, the manager gets a commission.
3. Weak Accounting Controls
Companies running on Excel or basic software have no way to distinguish "final sale" from "consignment." All recorded as the same invoice entry.
4. Owner Fear of Confrontation
Many owners sense "something is wrong" but fear opening the topic because it would reveal the manager they've trusted for 5 years has been deceiving them.
How to Tell If You're a Consignment Victim
Warning Signs:
- Reports show strong sales but the bank has no cash
- AR Aging shows large amounts on specific customers over 90 days old
- The same distributor buys large quantities at exactly month-end
- Frequent sales returns from the same customers
- Sales commissions are paid but cash isn't received
- Your inventory drops fast but the goods "haven't really sold"
The Right Solution: Accounting Distinction Between Real Sales & Consignment
International accounting standards (IFRS 15) are very clear on this: Revenue is recognized when risks and rewards transfer to the buyer. In consignment, risks and rewards stay with the seller → not revenue.
A serious ERP must distinguish:
- Sale (final): invoice, revenue, tax, full ownership transfer.
- Consignment Out: inventory transfer only — goods still owned by the company on books, no revenue, no tax, no commission — until the distributor reports actual sales.
How Hunt ERP Prevents This
📋 Dedicated Consignment Module
We have a dedicated consignment module:
- Consignment-out voucher per distributor — goods leave your warehouse but stay yours on the books
- Each distributor has a virtual "consignment warehouse" in the system showing exact balance
- Revenue is NOT recorded until the distributor reports actual sales (Consignment Sale)
- Returns go back to original warehouse without false revenue entry
💰 Commissions on Real Cash, Not Invoices
Set up commission plans in Hunt ERP that compute commission when cash is actually received, not when the invoice is printed. This closes the loop on sales managers inflating numbers.
📊 "Real Revenue" vs "Book Revenue" Reports
Hunt ERP shows you in one screen:
- Book sales: all invoices issued
- Real cash: what hit the bank / cashbox
- Gap: unpaid receivables + consignment goods in the field
You spot the gap in seconds, not a year later.
🔔 Automatic Alerts
- Alert if any customer has an invoice over 60 days old
- Alert if the same customer takes large quantities at exactly month-end
- "Old Consignment" report — goods at a distributor for 90+ days with no sales
🔒 Maker-Checker on Large Invoices
Any invoice over a set amount needs two approvals — sales manager + finance. No single sales manager can fabricate a deal alone.
Bottom Line
If your company is hitting "strong sales" but cash isn't flowing in, you must check:
- What percentage of booked sales hasn't converted to cash?
- Do you have "consignment" goods at distributors, and were they booked as sales?
- Does your AR Aging show abnormally large balances on specific customers?
- Are you paying commissions on invoices, not on cash?
Phantom sales kill companies silently. Never trust report numbers blindly — they must be backed by real cash, not distributor promises.
Want to see the difference between your book and real sales? Request a custom quote or start with a free trial of Hunt ERP and see real cash reports for yourself.
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