Job work material reconciliation is the check that everything a customer sent you has been returned, rejected with a reason, or is still with you, challan by challan. Done monthly, it is a short exercise. Left to the year-end, it becomes a long argument over numbers neither side can prove.
For a job work shop the material is not yours. Castings for machining, parts for plating, plates for fabrication: they belong to the customer, arrive on the customer’s challan and must go back on yours. Your business is the process, and your invoice is for the process, not the material.
Why reconciliation goes wrong
Most differences come from a few everyday situations:
- Counts at inward are not checked. The challan says 500 castings, the crate holds 492, and nobody wrote it down.
- Several challans become one batch. Parts from three inward challans are machined together and returned on two outward challans, and the link to the originals is lost.
- Rejections are not classified. A blow hole found during machining is a material defect, not your rejection, but if it is not recorded that way, it looks like a shortfall.
- Scrap and offcuts are informal. In fabrication job work, offcuts and scrap belong to the customer unless agreed otherwise.
- Units change. Material comes in by weight and goes out by piece, or the other way round.
The four numbers that must balance
For every inward challan, four quantities should add up:
- Received: what actually arrived, counted or weighed at inward.
- Returned: processed parts sent back on your outward challans.
- Rejected: parts returned or held as rejections, split by cause (material defect or process defect).
- Pending: what is still with you, in stores or on the shop floor.
Received should equal returned, plus rejected, plus pending, plus any agreed scrap or process loss. If it does not, the difference shows up in time to find it.
Recording it at the source
At inward
Record the customer’s challan number, date, part and quantity, then the actual count or weight. If they differ, note it and tell the customer the same day. Keep the material as customer-owned stock, separate from your own consumables and inventory.
On the shop floor
Job cards should carry the customer and their challan reference, so output and rejections are booked against the right inward lot even when lots are mixed in one batch.
At inspection
Classify every rejection by cause. Material defects found during processing, such as porosity in a casting, go back to the customer as their rejection. Process defects, such as a dimension machined undersize, are yours, and the rate list or contract decides how they are charged.
At dispatch
Each outward challan should refer to the inward challans it closes. When one dispatch closes parts of several inward challans, record the split.
A monthly reconciliation routine
A routine that works for most job work shops takes less than an hour per customer:
- Print the challan-wise balance for the customer: received, returned, rejected and pending for every open inward challan.
- Walk the shop floor and stores with the pending list and confirm the physical quantity of each lot.
- Close any challan where everything has gone back, and chase the ones that have been pending longest.
- Send the statement to the customer with the month’s invoices, and agree any differences while the month is still fresh.
The same report also shows which customer material has been lying with you the longest, which is often the first sign of a job that is stuck or a customer who has gone quiet.
GST and ITC-04
Under GST, a manufacturer (the principal) can send inputs and capital goods to a job worker on a challan without paying tax, subject to conditions and time limits for their return. The principal reports these movements in Form ITC-04. The job worker does not file ITC-04, but the principal depends on accurate challan-wise data from the job worker to complete it, and differences between the two records cause questions later. Rules and filing frequencies change, so check the current requirements with your tax adviser.
Billing by piece, kilo or square metre
Reconciliation and billing go together. A machining job worker usually bills per piece, a plating or powder-coating shop per kilogram or square metre, and a fabricator per kilogram or per job. When the rate for each customer and process is set up once, the invoice is calculated from the outward quantity or weight, and the reconciliation and the invoice always agree.
Common questions
How often should we reconcile with customers?
Monthly works for most shops, and some large customers ask for it with every invoice. If the data is recorded challan by challan, a reconciliation statement is a report, not a project.
What if the customer’s numbers differ from ours?
Compare challan by challan. Most differences are an inward shortage not reported, a rejection booked on one side only, or a return challan the customer has not yet entered.
Should customer material appear in our stock value?
No. It is held for the customer and should be kept separate from your own inventory, so it is never valued, issued or sold as yours.
How Formezy helps
Formezy records customer material against the customer’s challan as customer-owned stock, carries the challan reference through job cards and inspection, classifies rejections by cause, links return challans to inward challans, applies each customer’s process rates at billing, and gives a challan-wise reconciliation at any time. See the step-by-step flows on the job work industry page and the Inventory module, or book a demo.
