What is one of the requirements for a bill and hold arrangement?

In a bill and hold arrangement, one of the critical requirements is that the product must be ready for physical transfer. This means that the company has to complete all necessary preparations so that the product can be immediately transferred to the buyer upon request. The underlying rationale is that the seller maintains risks and rewards of ownership until the buyer actually takes possession. This readiness indicates that the product is set aside specifically for the buyer, reinforcing the legitimacy of recognizing revenue at the time of billing, even though the product has not yet been physically delivered.

Other requirements of a bill and hold arrangement often include that the buyer has requested the arrangement and that the seller has no ability to sell or use the product while it is held. However, the essential determination that the product is ready for transfer is what legally supports the recognition of revenue, ensuring compliance with accounting principles.