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What is a 'Bill Of Lading'?

A bill of lading is a legal document between a shipper and a carrier that details the type, quantity and destination of the goods being carried. The bill of lading also serves as a shipment receipt when the carrier delivers the goods at the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and an authorized representative from the carrier, shipper and receiver must sign it.

BREAKING DOWN 'Bill Of Lading'

As an example, suppose a logistics company will 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 loading the gas on the truck. Once the carrier delivers the gasoline 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 asset theft.

Assume, for example, XYZ Fine Dining receives shipments of fresh meat and fish five times a week. The restaurant manager determines the type and amount of meat and fish the restaurant needs to order. He then fills out a purchase order, and XYZ’s owner reviews and initials each PO 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 to what he requested on the PO. If the information matches, the PO and the bill of lading are sent to the owner, who reviews the documents and writes a check payable to the food vendor.

Factoring in Segregation of Duties

Every business needs to have internal controls in place to prevent theft. One key component of internal control is segregation of duties, which prevents one employee from having too much control within a business.

In the purchasing example, the owner does not issue a check to the vendor without reviewing the PO and the bill of lading. This step ensures XYZ only pays for what it ordered and what it received. If the two documents do not match when the restaurant manager compares them, the manager will ask the vendor about the exception. A third employee reconciles the bank statement and makes company deposits. All of these steps are in place to prevent asset theft.

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