Bill Of Lading

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What is a 'Bill Of Lading'

A bill of lading is a legal document between the shipper of goods and the carrier detailing the type, quantity and destination of the goods being carried. The bill of lading also serves as a receipt of shipment when the goods are delivered at the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.

BREAKING DOWN 'Bill Of Lading'

As an example, suppose a logistics company must transport gasoline from a plant in Texas to a gas station in Arizona via heavy truck. A plant representative and the driver sign the bill of lading after the gas is loaded onto the truck. Once the gasoline is delivered to the gas station in Arizona, the truck driver must have the clerk at the station sign the document as well.

How a Purchasing System Works

A bill of lading is one of several types of documents that must be managed in a purchasing system, and businesses need to review these documents to prevent theft of company assets. Assume, for example, restaurant XYZ Fine Dining receives shipments of fresh meat and fish five times a week.

The restaurant manager determines the type of meat and fish that needs to be ordered and the amount. He then fills out a purchase order (PO), and XYZ’s owner reviews and initials each purchase order before it is emailed to the food vendor. The vendor gathers the meat and fish, and both he and a representative from the overnight carrier sign a bill of lading. Next, the carrier delivers the food to the restaurant, and the manager compares the information on the bill of lading, or shipping receipt, to what was listed on the purchase order. If the information agrees, the purchase order and the bill of lading are sent to the owner, who reviews the documents and signs a check payable to the food vendor.

Factoring in Segregation of Duties

Every business needs to have internal controls in place to prevent theft, and one key component of internal controls is segregation of duties, which is a set of controls to prevent one employee from having too much control within a business. In the purchasing example, the owner does not sign the vendor check without reviewing the purchase order and the bill of lading, and this step ensures XYZ is paying for what it ordered and what was received. If the restaurant manager compares the two documents and the records do not agree, the manager asks the food vendor about the exception. A third employee reconciles the bank statement and makes company deposits. All of these steps are in place to prevent theft of assets.