Bill-and-Hold Arrangement

A revenue recognition method in which revenue is recorded before the delivery of goods

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What is a Bill-and-Hold Arrangement?

A bill-and-hold arrangement is a revenue recognition method in which revenue is recorded before the delivery of goods. It involves the recognition of revenue prior to the shipment of goods to the buyer. As such, a bill-and-hold arrangement is considered a controversial revenue recognition method due to the ease of manipulating earnings.

Bill-and-Hold Arrangement



  • In a bill-and-hold arrangement, revenue is recorded before the delivery of goods to the buyer.
  • According to the Journal of Accountancy, bill-and-hold arrangements are often associated with financial frauds.
  • IFRS 15 (Revenue from Contracts with Customers) outlines conditions that must be met for a seller to recognize revenue under this arrangement.

Understanding Bill-and-Hold Arrangement

A bill-and-hold arrangement is considered an aggressive method of revenue recognition, and its use is generally frowned upon by the Securities and Exchange Commission (SEC).

According to the Journal of Accountancy, bill-and-hold arrangements are often associated with financial fraud.

Consider the journal entries of a hypothetical bill and hold transaction:


Bill-and-Hold Arrangement - Journal Entry


The issue lies in the first set of journal entries – debiting accounts receivable and crediting revenue. These two journal entries convey that the seller recognized revenue without receiving payment (i.e., cash).

As such, there exists a motive for the seller to collude with the buyer by informing the buyer to purchase on a bill-and-hold arrangement and then cancel the order once payment is due.

In effect, this artificially inflates earnings for that reporting period but adversely impacts earnings in later periods, called channel stuffing. Due to the ease of conducting financial fraud with a bill-and-hold arrangement, The SEC has laid out the following criteria to recognize a bill-and-hold arrangement:


Criteria to Recognize a Bill-and-Hold Arrangement

1. Ownership risks should be passed on to the buyer

2. The buyer must have a commitment (preferably in writing) to buy the goods.

3. The buyer must request the bill-and-hold arrangement and have a substantive reason to do so

4. There must be a fixed and reasonable schedule for the delivery of goods to the buyer.

5. There must be no more obligations on the seller’s end.

6. The goods must be segregated from the seller’s inventory and not be used to fill other orders.

7. The goods must be ready to ship.


The SEC has outlined that the above is not intended to be used as a checklist – in some circumstances, an arrangement may meet all the criteria above and not be approved for revenue recognition.


Factors to Consider for a Bill-and-Hold Arrangement

1. The expected payment date and the extent that the seller is modifying its normal sales terms for the bill-and-hold arrangement

2. The seller’s history with bill-and-hold arrangements

3. The extent of losses faced by the buyer if the market value of the goods decline

4. The extent to which holding risks faced by the seller can be insured

5. Whether the goods can create a contingent sale that the buyer could reject   


Bill-and-Hold Arrangement under IFRS

According to the IFRS 15 (Revenue from Contracts with Customers), the following conditions must be met for a seller to recognize revenue under a bill-and-hold arrangement:

 1. The reason should be substantive.

2. The goods must be separately identified as belonging to the buyer

3. The goods must be ready for delivery to the buyer

4. The seller should not transfer the goods to another customer or for other uses.

Bill-and-Hold Arrangement Example

Consider the following background information:

  • Company A agreed to supply 100 widgets to Retailer A. The widgets are to be branded specifically for the retailer. 
  • The contract outlines where the widgets will be delivered to (Retailer A’s premises).
  • Retailer A believes that they have sufficient shelf space at the time of delivery.
  • At the end of the year, Company A has delivered 90 widgets, with the remaining 10 widgets having been produced, branded, and at its warehouse ready for delivery. Due to the lack of shelf space, Retailer A requests the remaining 10 widgets be held.

Question: Under the guidance of IFRS 15, how many widgets should Company A recognize as revenue?

Answer: Company A should recognize the 100 widgets as revenue.


  • The reason for the bill and hold arrangement is substantive, as Retailer A does not have any shelf space for the widgets;
  • Due to the widgets being branded specifically for Retailer A, they are separately identified to belong to the buyer and cannot be redirected to another customer or for other uses; and
  • The widgets are ready to be delivered to the retailer.

Bill-and-Hold Arrangement in the News

A pervasive fraud associated with bill-and-hold arrangements involves Sunbeam Corporation in the late 1990s. At that time, CEO Al Dunlap (nicknamed “Chainsaw Al”), who was known as a turnaround management specialist, encouraged customers to place large orders at significant discounts.

It resulted in customers placing a significant number of orders for barbeques during the middle of winter – months before the goods were required. To sweeten the deal, Sunbeam agreed to hold the goods at a warehouse until they were ready to be requested and shelved by the retailers.

As a result, Sunbeam booked significant sales, boosting the company’s share price. When questioned by auditors, Sunbeam eventually reversed a significant portion of the revenue recognized from such bill-and-hold arrangements, indicating that they were recognizing revenue too quickly and attempted to shift sales earlier onto their books.

In 2001, Sunbeam filed for bankruptcy and was found to have committed massive accounting fraud.


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