Apply import costs to a purchase order

Overview

You can apply Import Costs, such as freight fees and customs duty, against a Purchase Order, using the Linked Transaction functionality, in order to calculate an accurate landed cost of products.

Import Costs can also be appliedagainst a Purchase Order using Landed Costs.

Only one method of applying Import Costs must be used against each Purchase Order, i.e. the Imports Costs are applied either via entry in the Landed Costs section of that Purchase Order or via the Linked Transaction functionality of another Purchase Order in which the imports costs are captured. Using both entry methods against a single Purchase Order will result in Cin7 Omni calculating an inaccurate landed cost of the product line items in that Purchase Order.

Cin7 Omni calculates landed cost per product line item in Purchase Orders.
The process outlined in this article includes the capture of Import Costs in foreign currency, thereby removing the need to manually calculate local currency import costs.

To apply Import Costs to a Purchase Order, using the Linked Transaction functionality:

Create a Purchase Order for your products.
Create additional Purchase Orders to match invoices you will receive from your clearance agent, freight forwarder, or the local customs office.
Link each appropriate line item in the additional Purchase Orders to the Purchase Order for your products to apply these import costs to the product line items therein.

Create a purchase order for your products

Step one is simple, just create a Purchase Order for your products as usual. This will be referred to as your 'products Purchase Order'.

Create a purchase order for your import costs

Create a Purchase Order (or Purchase Orders) for your import costs. This will be referred to as your 'import costs Purchase Order'.

We recommend creating separate non-stock products for line items such as Freight and Customs Duty. You will find a Freight non-stock product pre-loaded in your account. Feel free to create additional non-stock products if you require additional line items. For more information on how to do this see the Non-Stock section of our article Stock Control Methods.

To create a Purchase Order for import costs:

From the left navigation select Purchase, then select New Purchase Order
In the contact fields, enter the name of your clearance agent, freight forwarder or local customs office.
In the product grid below, enter the non-stock items for freight and customs duty on your order
To view examples of how this should look, see our examples for Australia, New Zealand, the UK, and the US
Once all the line items have been entered, and the total matches the total of your invoice, approve the transaction by selecting Approve.

For more information on how to create Purchase Orders - see Creating a Purchase Order and Foreign Currency Transactions.

Apply import costs to the products purchase order

Once your 'import costs Purchase Order' has been created and saved, you now need to apply the non-stock line items for freight and customs duty back to the 'products Purchase Order'. To do this:

Make note of the 'products Purchase Order' number - copy to the clipboard if necessary
Open the 'import costs Purchase Order'.
Against the freight line item of this purchase select the Transactions Link box.
Search for and find the 'products Purchase Order' by entering the full PO number.
Select Allocate to apply the freight line item to the 'products Purchase Order'.
Select Save to confirm, then Save the transaction.
Repeat the process above to allocate the customs duty line item.

The 'import costs Purchase Order' must have been saved before Transactions can be linked.

If your 'import costs Purchase Order' relates to more than one 'products Purchase Order', you may wish to divide the import costs between multiple 'products Purchase Orders'. To do this:

Select Transaction Links as shown above for a line item.
Search for the first 'products Purchase Order', then allocate that line item to this first 'products Purchase Order'.
With the linked transaction box still open, change the Qty field to a percentage (entered as a fraction) of the original quantity of 1, i.e. if allocating the line item between two 'products Purchase Orders', change the Qty to 0.5, representing 50%.
Search for the next 'products Purchase Order', and allocate the next 50% (entered as 0.5) to this 'products Purchase Order', until you end up with multiple lines, like so:

This method will divide the import costs between the two 'products Purchase Orders', according to the percentages entered. So, if you wish to apply a greater portion of the import costs to one 'products Purchase Order' than the other, you will have to decide on the correct percentages to do this.

Note: You can use different 'products Purchase Orders' and allocation percentages for each line item in the 'import costs Purchase Order'.

Distribution of costs

Once the import costs have been allocated, the total amount of each type of import cost is distributed to the product line items of the 'products Purchase Orders' to which they have been allocated.

Cin7 Omni provides a useful report to break down exactly how import costs have been distributed for a particular purchase order. To view this report, hover over the cog icon in the Purchase Order module and then click Report

See Purchase Order Report for more information.

The total amount of each type of import cost is distributed to the product line items as follows:

Freight costs

Freight costs can be distributed in three different ways.

Method	Description
Value	This is the default method used - the more expensive items receive a larger portion of the freight cost. This method is most appropriate if all your items have similar weights and dimensions.
Weight	This method uses weight - the heavier items receive a larger portion of the freight cost. The weight of each product is specified on the product details page. This method is most appropriate if the weights of your products vary significantly.
Cubic Meters	The method uses volume - the larger items receive a larger portion of the freight cost. The volume of each product is specified on the product details page. This method is most appropriate if the size of your products vary significantly.

You can select the distribution method using the dropdown list to the right of the landed cost rows :

Examples:
A Purchase Order has two product line items on it with the following details:
- $100 total value for Product A with a quantity of 5, weight of 5kg each and volume of 2 cubic meters per item.
- $200 total value for Product B with a quantity of 10, weight of 10kg each and volume of 9 cubic meters per item.

The total freight allocated from the 'import costs Purchase Order' is $30.

Therefore, Cin7 Omni will split it and add it to the landed cost of each product line item, depending on the selected distribution method, as follows:

For Value distribution method:
- $10 for Product A, calculated from: $30 x ($100 / ($100 + $200))
- $20 for Product B, calculated from: $30 x ($200 / ($100 + $200))

For Weight distribution method:
- $6 for Product A, calculated from: $30 x ((5 x 5) / ((5 x 5) + (10 x 10)))
- $24 for Product B, calculated from: $30 x ((10 x 10) / ((5 x 5) + (10 x 10)))

For Volume distribution method:
- $3 for Product A, calculated from: $30 x ((5 x 2) / ((5 x 2) + (10 x 9)))
- $27 for Product B, calculated from: $30 x ((10 x 9) / ((5 x 2) + (10 x 9)))

Customs duty costs

The total customs duty amount is distributed according to the Customs Duty Rate applied against each product line item of the Purchase Order.

Example:
The two product line items on the Purchase Order above have the following custom duty rates applied:
- Product A with a 5% customs duty rate
- Product B with a 10% customs duty rate

The total customs duty amount is ($100 x 5%) + ($200 x 10%) = $25

Therefore, when $25 is allocated from the 'import costs Purchase Order' against this Purchase Order, Cin7 Omni will split it and add it to the landed cost of each product line item as follows:

- $5 for Product A, calculated from: $25 x (($100 x 5%) / (($100 x 5%) + ($200 x 10%)))
- $20 for Product B, calculated from: $25 x (($200 x 10%) / (($100 x 5%) + ($200 x 10%)))

To understand the setup of the customs duty rates that are used in the distribution refer to this article.

FAQs

How will my freight purchase appear in my accounting software?

If you are using the Perpetual method of accounting, then those line items that have been applied to other Purchase Orders will be imported as Inventory, and all other items imported as expenses.

If using the Periodic method, all line items will be imported as expenses.

I see your weights and dimensions are in metric - can they be changed to imperial?

We can't change the field description, however, if you were to enter weight as pounds or ounces, there is no technical reason why cost distribution shouldn't work, provided you enter the unit consistently across all your products, and the weight is in whole units. The same goes for dimensions.

Can I apply landed costs to a Purchase Order after the receipt of the goods?

Yes, this is possible. To do this, create a new purchase order for the landed costs, click on the Transaction Links column and link it to the original purchase order. The landed costs will be applied accordingly.