A Goods Received Note, also referred to as GRN can be defined as a two-way document that mainly acknowledges the delivery of the goods by a certain supplier and their subsequent receipt by their customer.
When the customer issues a purchase order, the supplier is mostly obligated to deliver them by the terms and conditions that have been mentioned in the contract.
Under the usual protocol, following the purchase order, when the goods are subsequently delivered, the Goods Received Note acts as a receipt that indicates that the inventory has been received, against the payment order that was issued.
The receipt of the Goods Received Note acts as a satisfactory notice, that the goods have now been delivered and need to be accounted for in the books so that the records are set straight.
Importance of Goods Received Note
Procurement tends to be an important part of any organization. Similarly, for the party selling these goods, it is important to keep a proper record to ensure that all transactions are duly accounted for in the business.
In addition to following normal delivery protocols, it is important to work with Goods Received Notes because of a number of reasons. These reasons are as follows:
Validating quality, as well as quantity of supplies
When a delivery pertaining to certain goods is made, it is assumed that all goods are received as they were instructed in the Purchase Order.
In the same manner, it is also important from a supplier’s perspective to note that these goods sent to the customers are acceptable in terms of quality and other specifications mentioned in the contract.
After checking for the suppliers, the receiver of the goods issues a Goods Received Note as a guarantee that the goods that have been received are acceptable in terms of quality, and quantity.
Quality Checks after Order Delivery
In some instances, quality issues arise after the goods have been delivered. In this case, the Goods Received Note acts as proof, that all quality checks were undertaken at the time of delivery. Therefore, the issue arose after the goods were actually delivered.
When faced with such a situation, the supplier can either choose to replace the goods free of cost (in good faith) or refuse to do so since all quality protocols were checked prior to the Goods Received Note being issued.
Therefore, this document can be a source of conflict resolution, if necessary.
Validation of invoices during the three-way match
Under the three-way matching process, a highly effective tool is used to reduce and subsequently eliminate the chance of fraud within the billing process of the company.
Using this protocol, the supplier invoices are matched, with supply request notes as well as goods received notes. These together are used to validate the following:
- Confirmation that the customer actually requested a certain quantity of supplies (Supply Request Note)
- The supplier had satisfactorily delivered the requested supplies (Goods Received Note)
- The supplier invoiced delivered supplies at the quantity and pricing that was specified
The methodology mentioned above is very important in detecting irregularities and catching any fraudulent activities.
Inventory Management and Stock Level Upgradation
Since the Goods Received Note is a communication document that conveys that the goods and services have been delivered to the customer, it should also technically be used as a source document that helps to manage inventory levels and subsequent stock levels.
Once the Goods Received Note is issued, the supplier and the receiver of the goods can make the required amends to their inventory levels.
Information Included in Goods Received Note
Goods Received Note is a critical document that serves many purposes, primarily on the grounds of ensuring that customers and suppliers can record everything in due time. It involves several different aspects, which include the following:
- Name of the Organization – for both the supplier, as well as the receiver of goods
- Product Details and Specifications
- Delivery Time and Date
- Product Quantity
- Name and signature of supplier’s representative
- Name and signature of the receiving person
- Purchase Order Number
The specifications mentioned above may or may not include any other terms and conditions that the creditors deem necessary
Issues Pertaining to Goods Received Note
Even though the Goods Received Note tends to be an important document for communication-related purposes, it can be seen that there are a couple of challenges that companies might come across when dealing with Goods Received Notes. These issues are as follows:
Delayed Order Processing and Invoicing
Goods Received Note is mostly issued when the delivery has been made. However, in some cases, processing times might be unnecessarily delayed.
This is because, after the delivery, the receiver might ask for a grace period to properly check the delivery for any differences between what they had ordered and what was received.
This delayed processing might eventually result in delayed payments, or processing delays because of a lack of paperwork.
Timely Communication with suppliers pertaining to inventory
Since Goods Received Notes acts as an official document, it is important to establish timely communication channels with the suppliers.
In this regard, it is important to note that Goods Received Note might hinder smoother communication channels because it does not render smooth responses under most circumstances.
This unnecessary delay is mostly caused by bureaucracy within the departments, resulting in untimely errors.
Since Goods Received Notes might not be ready in an upfront manner, it might result in companies facing substantial delays in invoicing. This might adversely impact the company’s cash flows since financial incoming might be compromised.
Alternate of Goods Received Note
Many organizations do not normally prefer going forward with the Goods Received Note. In this aspect, companies might resort to other options in processing the receipt of goods.
In a lot of instances, companies present invoice copies to the buyer of the goods and keep a signed receipt with them to retain the proof that the goods have been delivered on time.
In this regard, any document can serve a purpose similar to the Goods Received Note, as long as it validates that all the performance obligations (of the particular good or service) have been included in the order delivery.
Example of Goods Received Note
The example of Goods Received Note is illustrated in the following example:
Hetman Co. received a purchase order worth $25,000 from James Enterprises. Upon receiving the purchase order, Hetman Co. discovered they only had goods worth $20,000 in stock.
Upon confirmation from James Enterprises, Hetman Co. decided to deliver the goods they had on hand to James Enterprises. When James Enterprises received the consignment, they checked the delivery for quality and quantity, after which they signed the Goods Received Note. This was handed back to Hetman Co.
In the example mentioned above, it can be seen that Hetman Co. delivered goods and services worth $20,000.
After this receipt, both Hetman Co. and James Enterprises decided to make amends in their accounting records, to reflect the sale and purchase of inventory.
Once the Goods Received Note is signed and returned, the invoice is generated and handed over to the purchaser.