Clothing Factory Accounting Template (Bill of Materials, WIP, SKU Costing)

A clothing factory in Riyadh producing 5,000 pieces per month on simple books discovers six months in that its actual profit margin is barely half of what the owner thought. The cause is not weak sales; the factory’s books treat fabric, threads, and buttons as if they were finished goods, and they load electricity and rent onto the factory as a whole without distributing them across production lines. The result is pricing decisions built on incomplete numbers, bloated raw material inventory with no justification, and an inability to know which model actually profits and which drains resources.

Clothing factory accounting is not an expanded version of retail shop accounting. It is a different world built on transforming raw materials (fabrics, threads, accessories) into finished goods through cutting, sewing, finishing, and packaging stages, where each stage carries its own costs and adds measurable value. Any chart of accounts that does not reflect this flow will produce misleading financial statements and will hide problems such as excess waste, the gap between standard and actual cost, or silent inflation in work-in-progress inventory.

This template was designed specifically for Saudi clothing factories: a ready chart of accounts, three-layer costing (materials, labor, manufacturing overhead), a Bill of Materials (BOM) for every piece, tracking inventory across its three stages, a 15% VAT return, and full readiness for Phase 2 of e-invoicing. Everything you need to close the books on a production month and know exactly how much you earned per SKU and which production line deserves expansion.

Why clothing factory accounting differs from a clothing shop

A clothing shop buys a finished piece for SAR 80 and sells it for SAR 150, recording one transaction: purchased goods at a value, sales at a value, and the difference is gross profit. A factory does not buy a finished piece; it buys fabric at SAR 22 per meter, spools of thread, buttons, and packaging boxes, then pays wages for tailors and machine operators, then adds the piece’s share of electricity, maintenance, and rent, and finally ends up with a shirt at an actual cost that may range between SAR 38 and SAR 52 depending on line efficiency and batch size.

This transformation from raw to finished is the core accounting difference. Every shirt moves from a “raw materials” account into a “work-in-progress” account and then into a “finished goods” account before it is ready to sell. Three different inventory accounts instead of one, at least three additional journal entries per production batch, and the need to know how many pieces are stuck at each stage at any given moment.

The difference in financial statements

The income statement for a clothing factory contains a line called “Cost of Goods Manufactured” that replaces “Cost of Goods Purchased” in a shop. This line is calculated as: opening raw materials inventory + raw material purchases minus closing raw materials inventory = raw materials used, then direct labor and manufacturing overhead are added, and the result is adjusted by the difference between opening and closing work-in-progress inventory, yielding the cost of goods manufactured.

The difference in operating cycle

A factory’s operating cycle is longer. A fabric purchase order arrives 30 to 60 days after being placed with a Chinese supplier, is stored in the warehouse, pulled to the cutting line after two weeks, stays on the sewing line for 3 to 7 days, then 2 days in finishing, then packaging, then shipping to the customer. Throughout these days every piece of fabric has a book value that changes with each stage, and whoever does not track it will face large stocktaking variances at year-end.

The three cost layers in a clothing factory

The cost of every produced piece consists of three layers, and any chart of accounts that does not separate them will produce a misleading unit cost and phantom profit numbers. The layers are: direct materials, direct labor, and manufacturing overhead.

Layer one: direct materials

Everything that physically enters the piece and can be traced to it: the main fabric, lining, threads, buttons, zippers, accessories, labels, and packaging boxes. Fabric at SAR 22 per meter, with a shirt consuming 1.6 meters = SAR 35.2 of fabric. Buttons SAR 1.5, threads SAR 0.4, packaging SAR 1.2. The total of the first layer for a single shirt is SAR 38.3.

Layer two: direct labor

Wages of workers who physically touch the product: the cutter, the tailor, the finisher, the ironing worker, the packager. If a sewing line produces 200 shirts per shift, and the full shift cost for direct workers (8 people x SAR 250) is SAR 2,000, then the shirt’s share of direct labor is SAR 10.

General Organization for Social Insurance (GOSI) contributions and Saudi Labor Law entitlements are calculated on these wages and added to the second layer. A worker at SAR 4,500 per month actually costs the factory SAR 4,950 after the employer’s GOSI share.

Layer three: manufacturing overhead

Everything related to production that cannot be traced to a specific piece: factory rent, electricity, machine maintenance, equipment depreciation, supervisor and maintenance technician wages, indirect supplies (machine oils, needles, cutting blades). This layer is allocated to pieces using a loading rate, either by direct labor hours, machine hours, or piece count.

Example: rent SAR 35,000 + electricity SAR 18,000 + maintenance SAR 7,000 + supervisors SAR 22,000 + depreciation SAR 12,000 + supplies SAR 6,000 = SAR 100,000 in monthly manufacturing overhead. Total factory output is 5,000 pieces per month. The piece’s share is SAR 20.

Full shirt cost = 38.3 (materials) + 10 (labor) + 20 (overhead) = SAR 68.3. If the factory sells it for SAR 95, the real margin is 28%. If only materials were counted, a phantom margin of 60% would appear.

Bill of Materials (BOM) for every piece

The Bill of Materials (BOM) is the backbone of pricing any model and estimating its cost before production starts. Every SKU has a table showing what goes into making it with quantities, prices, and units. Without it a factory cannot determine a break-even point or notice that its actual cost has doubled because of a fabric price increase.

BOM structure

Each line in the BOM contains: material name, code, unit, theoretical quantity required per piece, actual quantity consumed after waste, unit price, total cost, and approved supplier.

Material	Code	Unit	Theoretical Quantity	Quantity After Waste	Unit Price (SAR)	Total (SAR)
100% cotton fabric	FAB-CT-22	Meter	1.45	1.60	22.00	35.20
Inner lining	LIN-PL-04	Meter	0.30	0.34	4.50	1.53
Polyester thread	THR-PL-01	Meter	120	135	0.003	0.41
12mm buttons	BTN-12-WH	Piece	7	7	0.18	1.26
Brand label	LBL-BR-01	Piece	1	1	0.35	0.35
Poly bag	PKG-PB-M	Piece	1	1	0.55	0.55
Single carton box	PKG-BX-S	Piece	1	1	0.85	0.85
Total direct materials per shirt						40.15

The gap between theoretical and actual quantity

A shirt theoretically needs 1.45 meters of fabric, but after cutting and accounting for waste the actual quantity consumed becomes 1.60 meters. The 10.3% gap is the acceptable waste rate for this fabric type. Any exceedance of this rate should trigger an alert, because it is either a defect in the cutting process, theft, or an error in marker design.

Updating the BOM periodically

Imported fabric prices fluctuate with shipping rates, the dollar exchange rate, and customs duties. Reviewing the BOM at least every two months is essential, otherwise the standard costs in the books will drift from reality and mislead pricing decisions. Every updated BOM should carry the review date and the owner responsible for it.

A ready chart of accounts for a clothing factory

The chart of accounts is the framework that classifies every financial transaction in the factory. A generic chart of accounts taken from a services company will not work, because the factory needs subaccounts for raw materials by type, the three inventory stages, and production costs by layer. The following table is a concise chart ready for adaptation.

Account No.	Account Name	Classification	Account Nature
1110	Cash on hand	Current asset	Debit
1120	Local banks	Current asset	Debit
1210	Wholesale customers	Current asset	Debit
1310	Raw materials inventory, fabrics	Current asset	Debit
1315	Raw materials inventory, accessories	Current asset	Debit
1320	Work-in-progress inventory (WIP)	Current asset	Debit
1330	Finished goods inventory	Current asset	Debit
1340	Packaging materials inventory	Current asset	Debit
1510	Machinery and equipment	Fixed asset	Debit
1515	Accumulated machinery depreciation	Fixed asset	Credit
2110	Local suppliers	Current liability	Credit
2115	Foreign suppliers	Current liability	Credit
2210	VAT payable	Current liability	Credit
2220	VAT recoverable	Current asset	Debit
2310	GOSI payable	Current liability	Credit
4110	Wholesale sales revenue	Revenue	Credit
4120	Retail sales revenue	Revenue	Credit
5110	Direct materials consumed	Cost of goods manufactured	Debit
5120	Direct labor	Cost of goods manufactured	Debit
5130	Manufacturing overhead	Cost of goods manufactured	Debit
5140	Material waste	Cost of goods manufactured	Debit
5210	Cost of goods sold	Cost of sales	Debit
6110	Selling and marketing expenses	Operating expense	Debit
6210	General and administrative expenses	Operating expense	Debit

How this chart serves management decisions

Separating “raw materials inventory,” “work-in-progress inventory,” and “finished goods inventory” lets the factory owner know at any moment how much capital is frozen at each stage. If they notice that WIP exceeds 35% of total inventory value, there is a flow issue in production or a bottleneck at one of the stages.

Separating fabrics from accessories

Assigning separate accounts for fabrics and accessories (buttons, zippers, labels) is necessary because the procurement profiles differ. Fabrics arrive in large batches from abroad with customs and shipping, while accessories are mostly local in smaller quantities with faster delivery. Mixing the two accounts hides real supply chain issues.

Cost accounting: Standard vs Actual Costing

Factory accounting relies on two complementary methods: Standard Cost and Actual Cost. The standard cost is what the piece should be based on the set benchmarks (the approved fabric price, the standard production rate, the acceptable waste rate). The actual cost is what really happened on the ground. The gap between them is called the variance and is the most important number for a production manager.

Setting the standard cost

For each model, the standard cost is calculated once based on the approved BOM + the standard labor rate + the overhead loading rate. For example: the shirt has a standard cost of SAR 68. This number enters the chart of accounts and is used to value inventory and set a target selling price.

Measuring variances

At the end of every month, the actual cost is compared with the standard for each element:

• Material price variance: the gap between the standard fabric price and the actual price paid. If fabric rises from SAR 22 to SAR 24, the variance is SAR 2 x the quantity used.
• Material quantity variance: the gap between the standard quantity and the actual quantity consumed. If waste rises from 10% to 15%, the variance is the excess quantity x the standard price.
• Labor rate variance: the gap between the standard hourly wage and the actual one.
• Labor efficiency variance: the gap between the standard hours for production and the actual hours consumed.
• Overhead variance: the gap between the amount loaded onto production and the amount actually spent.

Reading variances from a management lens

A positive material price variance may mean the procurement department did not negotiate well, or the supplier raised prices. A positive material quantity variance points to a problem on the cutting line or in marker design. A positive labor efficiency variance means a slow production line or machines that need maintenance. Every variance turns into a field investigation, not just a number in a report.

The three-stage inventory: raw, work-in-progress, finished goods

The factory holds three types of inventory at any moment, and each type has a different measurement method and different stocktaking rules. Mixing them in a single account blinds management.

Raw materials inventory

Fabrics and accessories before they enter the production line. Valued by weighted average or FIFO depending on company policy, and counted monthly. Stocktaking is not just counting rolls and bolts; it measures the meters actually remaining in each bolt because a bolt is often not used in full.

Example: 240 cotton bolts x 50 meters average = 12,000 meters x SAR 22 = SAR 264,000 of raw fabric inventory.

Work-in-Progress (WIP) inventory

Pieces whose manufacturing has started but has not yet completed. This is the hardest type to value because every piece is at a different stage. The practical solution: split the piece’s cost across operating stages and estimate the completion percentage.

Stage	Cumulative Completion %	Cumulative Shirt Cost (SAR)	Pieces at this Stage	WIP Value (SAR)
Cutting	30%	20.49	800	16,392
Sewing	70%	47.81	1,200	57,372
Finishing and ironing	90%	61.47	400	24,588
Packaging	100%	68.30	200	13,660
Total work-in-progress inventory				112,012

Finished Goods inventory

Completed, packed pieces ready for shipping. Valued at full production cost and counted more easily because each piece is standalone. Here physical stocktaking is direct counting of cartons.

The inventory journal entry cycle

When pulling fabric from the warehouse to the cutting line: debit Work-in-Progress / credit Raw Materials. When production finishes and pieces move to the warehouse: debit Finished Goods / credit Work-in-Progress. At the time of sale: debit Cost of Goods Sold / credit Finished Goods. Three indispensable journal entries in every production cycle.

Waste cost and how to handle it in the books

Waste in clothing factories is a reality that cannot be avoided. Every cutting operation leaves scraps, and every sewing operation can produce defective pieces. The question is not how to prevent waste but how to measure it and account for it, and how to distinguish between normal waste (acceptable) and abnormal waste (which warrants investigation).

Normal waste

Expected waste within the standard limits. Cotton fabrics have a rate of 8 to 12% depending on the model and marker complexity. This waste is absorbed into production cost, meaning it is loaded onto the sound pieces, raising their average cost. If planned output is 5,000 shirts requiring 7,250 meters of fabric, and the standard allows 12% waste, then 7,250 meters is the expected actual quantity after waste, and its full cost flows into the cost of the pieces.

Abnormal waste

Any exceedance of the approved rate. For example, if production actually needed 8,100 meters instead of 7,250, then 850 meters is an unjustified gap. This gap is not loaded onto product cost; it is recorded as a standalone expense in an “abnormal material waste” account (5140). A separate account makes the issue visible on the income statement and forces an internal investigation.

Recoverable waste

Some scraps can be sold to other factories or recycled into smaller products (children’s pieces, tailoring scraps, samples). Scrap sale revenue is recorded in a subaccount called “scrap sales revenue” that reduces total production cost. Estimating the value of recoverable scrap is part of building a good standard cost.

Accounting for defective pieces

A shirt that exits the line with an irreparable defect: its full cost is recorded as abnormal waste and deducted from finished goods valuation. A shirt that needs rework: the rework cost is added to the cost of the affected batch. Distinguishing the two cases matters for reading the efficiency of each production line.

International suppliers, currencies, and customs on fabrics

Most fabrics in Saudi clothing factories are imported from China, India, Turkey, and Pakistan. This opens the file of foreign currencies, customs, and shipping fees, all of which have a direct impact on the final raw material cost.

Calculating the full landed cost

The fabric’s FOB price from the Chinese mill is not the cost that enters your books. The actual cost includes: invoice value (FOB) + international shipping + marine insurance + customs + clearance fees + inland shipping from the port to the warehouse.

Item	Value (USD)	Exchange Rate	Value (SAR)	% of Total
Invoice value (FOB)	18,500	3.75	69,375	74.6%
International shipping	2,200	3.75	8,250	8.9%
Marine insurance	180	3.75	675	0.7%
Customs (5%)	1,044	3.75	3,915	4.2%
Clearance fees	–	–	2,800	3.0%
Inland shipping to warehouse	–	–	1,950	2.1%
15% VAT (recoverable)	–	–	13,037	–
Total cost entering inventory				86,965

The fabric whose invoice price is SAR 22 per meter actually costs SAR 86,965 divided by the meters received, not just the invoice value. Import VAT is recorded in a separate account (2220) and recovered later through the VAT return; it does not enter inventory valuation.

Exchange rate differences

When opening a letter of credit or making a bank transfer in dollars, the invoice value is recorded at the exchange rate on the recognition date. If the rate changes between recognition and actual settlement, an exchange difference appears and is recorded in “FX gains/losses” on the income statement; it is not loaded onto inventory cost.

Tracking goods in transit

Fabric that has shipped but has not yet arrived has a subaccount called “Goods in Transit.” The invoice value is recorded there at the time of shipping, then transferred to raw materials inventory upon physical receipt after adding all other costs. This prevents phantom inventory inflation and gives an accurate picture of assets.

VAT return for factories and e-invoicing

Every clothing factory with annual sales above SAR 375,000 is registered for VAT with the Zakat, Tax and Customs Authority (ZATCA) and files a quarterly or monthly return depending on sales size. The ready template includes a worksheet to prepare the return.

Output and input tax

Domestic sales carry 15% output VAT. Local purchases (accessories, services, electricity bills, rent) contain recoverable input VAT. The difference between the two is the net amount payable to ZATCA or recoverable.

Item	Transaction Value (SAR)	15% VAT (SAR)
Domestic sales at standard rate	720,000	108,000
Exports (zero-rated)	180,000	0
Total outputs	900,000	108,000
Imported fabric purchases (paid at clearance)	320,000	48,000
Local accessory purchases	85,000	12,750
Rent and utilities	62,000	9,300
Total recoverable inputs	467,000	70,050
Net VAT payable		37,950

Zero-rated exports

If the factory exports part of its output to the Gulf or beyond, those sales are zero-rated while retaining the right to recover input VAT linked to them. The books must therefore separate domestic sales from exports starting at the point of invoice issuance.

Phase 2 of e-invoicing

Phase 2 of e-invoicing mandates a real-time link between the invoicing system and the ZATCA Fatoora platform. Every B2B sales invoice must be sent to the ZATCA platform before printing and returns with a QR code and a unique identifier.

Invoice requirements at this phase: an XML format that meets the standard, a QR code, a cryptographic signature, the buyer’s tax ID on wholesale invoices, and line item details with quantities and prices. A manual template cannot meet these requirements, and the factory has no choice but to connect its systems to an accounting platform certified by ZATCA.

B2B vs B2C invoices

Wholesale sales to retail shops are B2B tax invoices that require the buyer’s tax ID and are sent to ZATCA instantly before being handed to the customer. Direct retail sales (B2C) at the factory showroom require simplified invoices sent within 24 hours of issuance. Separating the two types in the books is essential to prepare an accurate return.

Profitability reports by SKU and by production line

A general income statement gives you the factory’s overall profit, but it does not answer the more important question: which model profits and which loses? Profitability reports by SKU and by production line are the tools that turn numbers into pricing and focus decisions.

SKU profitability report structure

For each SKU or group of similar models, the following is calculated: gross revenue, material cost, direct labor cost, manufacturing overhead share, variable selling cost (commissions, customer shipping), contribution margin, share of fixed expenses, and net profit per piece.

SKU	Quantity Sold	Selling Price (SAR)	Unit Cost (SAR)	Contribution Margin (SAR)	Margin %
SHIRT-CT-M-WH	1,200	95	68.30	26.70	28.1%
SHIRT-CT-L-BL	900	95	71.50	23.50	24.7%
POLO-PQ-M-NV	700	120	78.40	41.60	34.7%
PANT-CH-32-KH	500	165	134.20	30.80	18.7%
JACKET-DN-L-BK	180	320	248.50	71.50	22.3%

Reading the report

The pant (PANT-CH-32-KH) sells at a high price but its margin is only 18.7%, below average. The cause may be: high chino fabric cost, a higher waste rate, or a slow line consuming more labor hours. The decision: either renegotiate with the fabric supplier, raise the selling price by 8 to 10%, or discontinue the model if margin does not improve.

The polo shirt (POLO-PQ-M-NV) has the highest margin at 34.7%. The recommendation: increase its produced quantity, allocate additional marketing budget for it, and consider seasonal versions with the same construction (new colors, embroidery).

Production line profitability report

A higher level than SKU: grouping products into families (shirts, pants, jackets, underwear) and calculating total profitability per line. This report also separates the fixed costs allocated to each line (space rent, dedicated machines, line supervisor) from general costs.

The management review cycle

These two reports are issued monthly and reviewed with the sales and production teams. Any SKU with a margin below 18% for two consecutive months enters a mandatory review list: either adjust cost, adjust selling price, or cancel.

The most common mistakes in Saudi clothing factory accounting

After working with dozens of factories, the same mistakes repeat in similar shapes. Knowing them in advance shortens years of trial and error.

Mistake one: mixing product cost with general expenses

Many factories record factory rent and factory electricity under “General and Administrative Expenses,” so production cost appears misleadingly low, gross margin appears inflated, while operating profit is weak. The correct treatment is that production costs (even fixed ones) enter Cost of Goods Manufactured, not general expenses.

Mistake two: not accounting for the WIP share

At month-end the accountant closes the books without estimating the value of pieces stuck on the lines. Result: an inflated “raw materials consumed” account and a phantom shrinkage in inventory, reflected in an overstated cost of goods manufactured and understated profits. Correct closing requires a physical WIP count at every month-end.

Mistake three: using invoice price instead of landed cost

Imported fabric enters inventory at invoice value only without adding shipping, customs, and clearance fees. The gap is wrongly recorded as an expense, inflating expenses and understating material cost. Accurate valuation requires allocating all incidental costs onto incoming materials by value, weight, or volume proportions.

Mistake four: not separating normal from abnormal waste

All quantity gaps are loaded onto production cost as if they were normal waste, so the signal of a problem disappears. The correct approach is to set a waste benchmark (for example 10% for cotton) and record any exceedance as a standalone expense that triggers an investigation.

Mistake five: an outdated BOM

Standard cost is calculated from a BOM that is two years old. Fabric and accessory prices have risen 20 to 30%, but the pricing system still calculates based on the old list. The result: selling at unprofitable prices without anyone noticing. A mandatory periodic review every two months.

Mistake six: ignoring customs input VAT

The VAT paid on fabric shipments at customs clearance is not recorded in “VAT recoverable,” but instead added to fabric cost. The result: inventory cost inflated by 15% incorrectly, and a forfeited recovery right with ZATCA.

Mistake seven: one account for all inventory

No separation between fabric inventory, accessory inventory, work-in-progress, and finished goods. Everything sits in a single account called “Inventory.” Factory management becomes blind to where its capital actually is.

Mistake eight: no periodic fabric stocktaking

Fabrics are counted only annually. Large gaps between books and reality accumulate and are discovered late. The correct approach is monthly stocktaking, even if only on a rotating cycle count of high-value materials.

How Qoyod helps you manage factory accounting

Qoyod provides an accounting infrastructure built for Saudi establishments, including clothing factories. Putting the template you read above into practice becomes straightforward when all the pieces sit in one place.

Multi-stage inventory management

The inventory module in Qoyod supports separation between raw materials, work-in-progress, and finished goods inventory. Every movement between stages automatically generates a journal entry, and every SKU has a complete card with movements, quantities, and average cost.

A customizable chart of accounts

The chart of accounts in Qoyod is fully editable to match a clothing factory’s structure. You can create subaccounts for fabrics by type, separate accounts for customs and FX differences, and custom reports at every level of the chart.

Phase 2 e-invoicing

Qoyod is a ZATCA-certified provider and fully compliant with Phase 2 e-invoicing requirements. Every B2B or B2C invoice is generated in XML format, cryptographically signed, sent to the Fatoora platform in real time, and returned with a print-ready QR code.

One-click VAT return

The VAT return report is generated automatically from the period’s data: domestic sales, zero-rated exports, recoverable inputs, and customs VAT. The return is ready to download and upload directly to the ZATCA portal.

Detailed profitability reports

Profitability reports by SKU, by production line, by customer, and by geographic region are available from the reports module, with the option to export to Excel or Google Sheets for deeper analysis. Reports refresh in real time with every sale or inventory movement.

Support that never sleeps

Qoyod’s support team is available 24 hours a day, every day of the week through live chat, phone, and email. A question about how to record a customs entry or how to set up a waste cost account? An answer is ready in minutes.

Browse Qoyod plans and choose what fits your factory’s size, or start a free trial directly.

Frequently Asked Questions

Is the template suitable for a small factory producing less than 1,000 pieces per month?

Yes. The three-layer logic, the BOM, and the three-stage inventory apply at any scale. The only difference is that a small factory may settle for a more concise chart of accounts and consolidate some subaccounts. But separating raw materials, work-in-progress, and finished goods remains essential even if monthly output is 200 pieces, because it is what gives you a real view of your cost.

How do I set the manufacturing overhead loading rate?

The simplest method: divide total monthly manufacturing overhead by total pieces produced, giving a rate per piece in SAR. The more accurate method: divide by total direct labor hours or machine hours. For example: SAR 100,000 of overhead divided by 5,000 labor hours = SAR 20 per hour, then multiply by the hours required to produce a single piece. For a multi-product factory, the second method is fairer, because it loads the more complex model (which takes more hours) with a larger share.

When do I use standard cost and when do I use actual cost?

Standard cost is used for daily pricing and inventory valuation inside the system throughout the month, because it is stable and available. Actual cost is calculated at month-end after closing the production books, then compared with standard to measure variances. Final financial statements are adjusted to reflect actual cost if the variance gap is material (typically more than 5% of production cost).

How do I compute labor cost for a worker who operates on more than one production line?

Through daily time sheets. Every worker logs the hours spent on each line, so their salary is allocated proportionally. A tailor who spent 60% of the month on the shirt line and 40% on the pant line is loaded 60% to shirts and 40% to pants. Modern factory systems include time tracking modules linked to payroll, which generate the allocation automatically.

Do I need a monthly physical stocktaking or is an annual one enough?

A full annual physical count is mandatory. But a monthly cycle count on a sample of high-value materials (expensive fabrics, rare accessories) is essential to catch gaps early. A full WIP count is required at the end of every financial month because it flows into the financial statements. Finished goods inventory should be physically counted at least every two months.

What is the difference between e-invoicing for a factory and for a retail shop?

The technical requirements are the same (XML format, QR code, cryptographic signature, transmission to the Fatoora platform). The difference lies in the nature of the transactions: a factory issues full B2B tax invoices to wholesale shops with tax IDs, and issues fewer simplified B2C invoices at the factory showroom. The factory also handles credit notes and debit notes more frequently (returns, wholesale price adjustments), and all of these must be sent to the Fatoora platform with the same mechanism.

How do I account for free product samples?

Samples sent to prospective wholesale customers are recorded at their cost (not their selling price) as a marketing expense, and inventory is reduced by the same amount. A tax invoice is still required because ZATCA treats samples as a supply subject to 15% VAT (which the issuing establishment bears if it does not pass it to the customer). Dedicating a “product samples” subaccount helps track marketing cost accurately.

Does the template support batch and lot tracking?

Yes. Every production batch carries a unique lot number, against which the following is recorded: production start date, input quantities, materials consumed, output quantities, labor hours, and waste percentage. This allows independent batch cost tracking, and identifies the source of any quality defect (going back to the lot number to know who cut, who sewed, and which fabric was used). Lot tracking is also essential for factories exporting to markets that require certificates of origin or conformity.