What is a third party?

What is a third party?

If you sell goods to the same company you buy supplies from, is that company your customer or your supplier? For accounting and inventory control, the answer is: both. Business software uses a single word for that person or company: a third party. In inventory and accounting terms, a third party is simply any person or business you deal with — a customer, a supplier, or both at once. Understanding this idea avoids duplicate records, keeps your receivables and payables tidy, and gives you the complete history of every person or entity you do business with.

One record for every role

In Kardex Tauro, a third party is any natural or legal person that interacts with the system, regardless of the role it plays in a specific transaction. The program does not keep separate categories of customers, suppliers, employees or buyers: it manages a single list of third parties, and each one takes the role that corresponds to the document it appears in. The same person or company can act as a customer in a sale, a supplier in a purchase, or an employee in an internal consumption.

The table below summarizes the roles one third party can take and the document where it acts:

Destination warehouses in an internal transfer are also recorded as third parties (cost centers), just like an employee who consumes supplies, a carrier who moves goods between warehouses, or a workshop that receives equipment for repair. In practice, every document that enters or leaves your company does so with an associated third party.

Why one word instead of several lists?

Many programs keep a customer list and a separate supplier list, even when both refer to the same person. The third-party concept removes that split because it is simpler and more accurate:

• A supplier who is also a customer is recorded once, with a single code and a single identification number: no duplicated information.
• Contact management is simpler, and searching and selecting work the same way in every window: sales, purchases, consumptions, transfers, returns, consignments and cash.
• You can view the complete history of interactions with each person or entity: what it bought from you, what it sold to you, and what it owes.

What the record should contain

Registering a third party requires only a few fields, but each one has a purpose:

A code that never changes

The Code field is the only one that cannot be modified once the third party is created: when you edit the record it appears grayed out. The reason is traceability: the code stays as the reference in every historical document of the system (purchases, sales, transfers, losses, accounts receivable and payable). If it could be changed, the link to all that history would be lost.

That is why meaningful, easy-to-remember codes are recommended: CLI001 for customers, PROV001 for suppliers, EMP001 for employees or TRAN001 for carriers. If a code is assigned incorrectly, the system will not let you fix it: you would have to create a new third party and manually migrate the associated documents, a complex process that requires technical support. Codes of deleted third parties should not be reused either: each third party must have a unique code.

The system validates that uniqueness: trying to create a third party with an existing code shows an error. And in the windows where you select a third party, if you type a code that does not exist, the field turns red. To avoid that, the recommended practice is to use the search button (magnifying glass) of the selector and pick the third party from the list instead of typing the code.

Credit line and web access: two fields that decide

The credit line is the maximum amount the third party may owe the company at any time from credit sales. When you make a credit sale, the system automatically checks that the party's current accounts receivable plus the value of the new sale do not exceed that line; if they do, the sale is blocked. If the line is left at zero, the third party cannot buy on credit: all its purchases must be cash. That is why it should be assigned carefully: start with conservative limits and raise them as the customer proves its ability to pay. Example: a customer with a credit line of 5,000,000 that already owes 3,000,000 can receive a credit sale of 1,500,000 (the projected total would be 4,500,000), but one of 2,500,000 is blocked, because the total would reach 5,500,000.

The Web User box lets the third party — usually customers or suppliers — access the system from a browser without installing anything: it can check receivable or payable balances, view its purchase or sales history, download electronic invoices and review pending purchase orders. Checking it enables the password field, which must meet the configured security policies.

Example: the same tax ID buying from you and selling to you

Distribuidora ABC S.A.S. (tax ID 900.123.456-7) sells your store oil and grains and, at the same time, its employees buy packaging and cleaning supplies from you. In a system with separate lists, that company would appear twice: once as a supplier and once as a customer, with duplicated data and two histories that never meet. With the third-party concept you create one record with one code: in purchase orders that third party acts as a supplier; in sales invoices, as a customer; and in accounts payable or receivable it appears as a creditor or debtor depending on the balance.

When you look up the history of that code, Kardex Tauro shows both directions of the relationship: how much it has sold to you and how much it has bought from you, with its documents and balances. That same record feeds every analysis: sales by customer, purchases by supplier and consumption by employee.

Common mistakes when managing third parties

• Creating the same third party twice: before registering, search by name, code or document; the system rejects duplicate codes, but the best practice is to check first with the search box.
• Codes with no criteria: a meaningless code forces you to open the record to know who it is; use clear naming such as CLI001 or PROV001, and train everyone who creates third parties to follow the same standards.
• Deleting third parties with history: the system validates that the party is not used in active documents before deleting, but you should first check whether it has associated invoices or accounts: deleting it without assessing the impact can break traceability.
• Inconsistent names: do not use "Juan Perez" in one record and "Juan Carlos Perez" in another if it is the same person; complete, consistent names avoid confusion when searching.

Third parties, portfolio and ABC analysis

The third-party concept connects directly to your portfolio: the debtors that appear in accounts receivable are customers recorded as third parties, and the party's credit line affects the ability to generate new receivables; the creditors in accounts payable are suppliers recorded as third parties. In practice, your accounts receivable list is the list of your customer third parties with an outstanding balance, and your accounts payable list is the list of supplier third parties you owe money to.

Because every operation is attached to a third party, you can answer questions such as: who buys the most? From whom do I buy the most? Which product moves the most value with each third party? The system records the uses of each product by third party (document type, third-party code and name, units moved, number of documents and total value), and with that information you can apply the Pareto principle, or ABC analysis, by third party:

With that classification you can identify your critical customers (the group that generates most of your sales), detect whether you depend too much on a single supplier, and focus your sales and negotiation efforts where they matter most.

The third party is the piece that connects accounting with inventory: every document enters or leaves with an associated third party, and every peso owed to you or by you belongs to a single record. Apply this concept from your very first record and your information will be ready for reports, analysis and decisions. This article explains the general concept; for specific decisions about your accounting, please consult your accountant.