In retail, the customer pays for the piece and walks out. In wholesale, the trader takes hundreds of grams, pays the making charge today or a week later, and returns the same gold by weight once he has sold. So the account here runs in two currencies at once: money and grams. This guide explains how to write a wholesale invoice, how to track the two debts and how to settle them, with a worked example.
Why is wholesale settled in two currencies?
A wholesaler usually does not sell gold at today's price. He hands over the metal as a debt by weight and takes his profit from the making charge. The customer then returns the same metal, as scrap gold or bars, or pays for it in cash at a price they agree on. So two accounts stay open between them, and they cannot be added together:
- The making-charge debt: in dinars, paid in cash, by card or by transfer.
- The gold debt: in grams, settled in gold, or turned into money by fixing.
Whoever adds grams to dinars in a single figure loses sight of the truth: the gold price moves every day, and the grams do not.
Pure grams: from the selling karat to 24K
Customers do not deal in a single karat. One invoice is 21K, one lot is 18K, and scrap comes back at 22K. The answer is to record the gold debt as its 24K equivalent, that is, in pure gold:
Pure grams = weight × karat ÷ 24
So 1000 grams of 21K equal 875 pure grams, and 480 grams of 21K scrap equal 420 grams. With this single unit, what went out can be compared with what came back, whatever the karat. The making charge and how to calculate it are explained in How to calculate the price of gold with the making charge: formula and example.
A wholesale invoice creates two debts
Every correct wholesale invoice carries two things at once: gold that has become a debt on the customer in grams, and a making charge that he may pay in full, in part, or later. If the invoice says “paid” when it means the making charge alone, it misleads whoever reads it, because the gold is still owed. So the invoice must show both debts together, and it is best for it to print the customer's balance before and after it, so that he signs it.
Three ways to settle the debt
- Handing over gold: the customer returns gold by weight, which is converted into pure grams and deducted from his debt.
- Fixing: the two sides agree on a price for the pure gram, the customer pays the value of the grams in cash, and that part of the debt is cleared. The difference between the fixing price and the market price at that moment is a gain or loss on the metal, not on the making charge, so each is counted separately.
- Cash payment: to pay a deferred making charge.
All three can come together in a single voucher. What matters is that every settlement produces a printed voucher the customer signs, because he has handed over gold and money.
A worked example
A trader sold a wholesale customer a lot weighing 1000 grams of 21K, at a making charge of 1.250 dinars per gram. So the making charge is 1,250 dinars, of which the customer paid 500 on delivery. Two settlements followed:
| Transaction | Gold debt (pure grams) | Making-charge debt (dinars) |
|---|---|---|
| The invoice: 1000 g of 21K, and a making charge of 1,250 | 875 | 1,250 |
| Paid on delivery | 875 | 750 |
| Settlement 1: handed over 480 g of 21K scrap (= 420 pure) and paid the rest of the making charge | 455 | 0 |
| Settlement 2: fixed 455 g at 43 dinars, so paid 19,565 dinars | 0 | 0 |
If the market price at the moment of fixing was 42.800, fixing at 43 makes a metal gain of 455 × 0.200 = 91 dinars. This gain is separate from the profit on the making charge.
The account statement and allocating payments
A wholesale customer does not buy just once. So he needs a statement with two columns for gold and two for cash, debit and credit, with a running balance for each. And when the customer pays a general amount, the payment is allocated to his invoices from the oldest to the newest. For example: two invoices, the first for 600 dinars and 300 g, the second for 400 dinars and 200 g. The customer paid 700 dinars and handed over 350 pure grams. The first is closed in full, and the second still has 300 dinars and 150 g outstanding. That way you know which invoice is still open, and since when.
Debt ageing and credit limits
An old debt is riskier than a new one. Split what is outstanding on each invoice by its age: up to 30 days, then 31–60, 61–90, 91–120, and over 120. Do this for cash, then for gold in a separate table, because grams cannot be added to dinars. Then give every wholesale customer two limits: one for the making-charge debt and one for the weight debt. When a customer nears his limit, the salesperson sees it before handing over a new lot.
The other side: buying from the supplier
What you do with your customer, the supplier does with you. You buy a lot from him by weight, and you owe him two debts: pure gold in grams, and a making charge in dinars. You settle it in gold by weight or by fixing. This is where the cycle closes: the gold your customers return can pay the supplier by weight. That is why you need a statement for the supplier in cash and gold, just as for your customer.
Returns in both directions
- Sales returns: the weight goes back to the lot, the customer's gold debt goes down, and the making charge is refunded to him in cash or stays as a credit balance on his account.
- Purchase returns: the gold goes out to the supplier, and what you owe him goes down. Gold that has been sold cannot be returned.
The governing rule: a weight debt must never become negative through a return or a cancellation, or you would end up owing your customer gold that never existed.
Questions to ask any vendor
- Does the wholesale invoice record the gold debt in pure grams, separately from the making-charge debt?
- Does the invoice print the customer's balance before and after it, in gold and cash?
- Does the settlement voucher combine receiving gold, fixing and collection, and is it printed for signature?
- Is the metal gain from fixing counted separately from the profit on the making charge?
- How is a payment allocated to invoices, and can I see debt ageing in gold too?
- Does the supplier have a statement in cash and gold, and can I pay him by weight from my customers' gold?
- What does the software prevent if I cancel an invoice whose account has been settled?
How ZMZMGold handles wholesale trading
| Area | In ZMZMGold |
|---|---|
| Wholesale invoice | Sells lots by weight and karat. The making charge is per gram of karat weight, and the gold is converted automatically into pure grams and recorded as a debt by weight. An invoice with a zero making charge is not accepted. |
| Payment | The making charge is collected in cash, by card or by transfer, or left on credit, and the remainder is recorded against the customer. Sales tax, if you enable it for your branch, is calculated on the making charge. Tax rules differ from country to country, so check with the competent authority in yours. |
| The balance on paper | The invoice prints the customer's balance before and after it, in gold and making charge, across the whole company, and the customer signs an acknowledgement of it. |
| Settlement | One voucher combines: receiving gold into the company's gold treasury, fixing at a price you set with its cash going into the cash box or the bank, collecting the making charge, or refunding a balance to the customer. The finance team carries it out, and it is printed as soon as it is done, with signatures for the accountant, the customer and the approver. |
| Metal gain | The difference between the fixing price and the market price is recorded as a gain or loss on the metal, separately from the making charge. |
| Allocating payments | From the oldest to the newest automatically, or by hand, and an allocation never exceeds what is outstanding on any invoice. |
| Customer statement | Cash and gold with “debit” and “credit” columns and a running balance since the account was opened, and the financial year as a viewing window with a balance carried forward. The opening balance is entered in cash and by weight. |
| Debt ageing | Five bands from the invoice date for cash, a separate table for the weight debt, and each customer's credit limit. |
| Credit limit | Two limits for a wholesale customer, one in cash and one by weight, set by the manager. The sales screen alerts you when a limit is exceeded. |
| Buying from the supplier | The branch enters the karat, quantity and weight, and finance enters the making charge and approves, or rejects with a reason. Two debts are then created for the supplier, gold and making charge. He is paid by fixing in cash or by weight from the company's gold treasury, and he has a statement in cash and gold. |
| Returns | A sales return puts the weight back into the lot and issues a credit note for the making charge and its tax. A purchase return reduces the supplier's debt, and does not return gold that has been sold. You can set a maximum period for returns. |
| Safeguards | No settlement can exceed the customer's debt, and no weight debt can become negative through a cancellation or a return. Cancelling a wholesale invoice is in the hands of finance, with a written reason, and once the shift is closed a return is used instead. |
| The day and the shift | Wholesale sales appear in the daily settlement with their making charge and weight, separately from retail. |
Details on the gold and jewellery shop management software page. On keeping the profit on the making charge apart from price movements in the accounts, read Integrated accounting software for gold shops: what it should do and The making charge in gold shops: how do you know your real profit?
In short
Wholesale gold trading is two accounts running side by side: a making charge in dinars, and gold in pure grams. So write both debts on every invoice, settle them with a voucher the customer signs, allocate payments to the oldest first, and watch debt ageing and limits. And when your customers' gold comes back to your treasury and then on to your supplier, you have closed the whole cycle by weight.