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What is a Consignment Agreement?

The term- Consignment can easily remind you of transportation and logistics. The supplier is the Consignor, while another business is the Consignee. The Consignor makes a Consignment agreement with the Consignee to sell goods. He owns the services and goods until the business (Consignee) has sold them to customers. Under the Agreement, Consignee acts as the agent and receives a commission for the products sold. 

Thus, the major stakeholders are-

  • Consignor- He owns the goods.
  • Consignee- It is the person dispatching the third party to buy the consigned items. 
  • Purchaser- It involves consumers who will make the final purchase.

Why Have I Written Consignment Agreement?

As a Consignor, you always like to look for a company to sell your services and goods to third parties. Thus, you can draft a Consignment Agreement to serve this purpose. The Agreement is intended for protecting your relationship with the consignee. Moreover, the entire agreement needs to reveal that you will own the goods until the Consignee has confirmed the sale. It will also reduce your liabilities and outline your major roles.

Consignment is of 2 types-

  • Inward Consignment

The Consignee sells products based on the Consignor’s instructions.

  • Outward Consignment

The Consignee delivers goods to a different place to make the deal. The Consignor has the ownership of these goods.

Consignment Agreement- What are its advantages?

Cost-effectiveness

Consignment ensures cost-effective business operations. You can focus on the manufacturing process and product design by making the Agreement. You will not need to be concerned about storing your goods in the store. In most cases, businesses are not familiar with warehouse management. Producers can hire a Consignee to drive up their business activities and achieve higher profit.    

Grow your business across different geographical regions

 You may like to distribute your goods to several parts of your country. However, you have no clear concept about these markets. Recruit local agents and generate more sales. These agents have a clear understanding of local customers. Moreover, they can tailor the marketing strategies based on needs.

Better relationships with consumers- Some agents like to develop long-term relationships with customers. They know their customers’ desires and gain their trust. On the contrary, startups face issues while gaining the customers’ trust. 

For which goods can you make a Consignment Agreement?

The most commonly chosen goods are potted plants, clothing, books, cars, decorations, and magazines.

Documents you need for Consignment Agreements

The most important document for international trade is a proforma invoice. The major reason for using the invoice is to let buyers know the payable amount for the products sold. Thus, the buyer will have no confusion about the final price. The amount mentioned in the invoice gives the estimate. The Consignee will learn about the details of the products like quantity, weight, model numbers, serial numbers, and the agreed price.

What Are The Components Of a Consignment Agreement?

  • Parties Concerned- The contract will outline details of the involved parties and the date of the contract. 
  • Recitals- They illustrate the reason for making the agreement. 
  • Consignment Period- It identifies the duration of the consignment and finds the potential to adjust the term while no one has bought the goods.
  • Delivery of Goods- It is another important section stating that goods are provided on a consignment basis. It also tells about the potential risk of the consignor for transporting the products.
  • Consigned GoodsThe Agreement includes a section to mention some important things about the goods. It is a comprehensive description, which displays the model, serial numbers, style, initial retail price, date of purchase, and current retail price.
  • Selling effort– The Consignee is obliged to promote and sell goods. He also identifies what the consignee has to anticipate.
  • Commission and Payment- It displays the part of the sale the consignee will keep as commission.
  • Title to Products- The Consignor holds the ownership of goods displayed in stores.
  • Return of Products- The Consignor can make a request for returning the goods after sending a notice.
  • Termination- It reveals that any party may terminate the Agreement anytime. 
  • Loss/Damage risk- It is another section restating the consignee’s liability while he possesses the goods. It also outlines the penalties in case of losing the goods. 
  • Additional Terms- Some additional terms may be applied to the resale and purchase processes.
  • Payment terms– The clause is related to the cash flow and the remuneration charge. The cash flow in the transaction can limit business activities. It is highly essential for businesses relying on the transaction to turn out liquid cash.
  • Electronic signatures– These signatures are the proof of the parties involved. 

You have now learned what a Consignment Agreement form comprises. Still, you can hire an attorney or law firm to draft the Consignment Contract. Make sure that it has clearly revealed the terms on which you will work with the Consignee. Both parties have to know what is written in the Contract.

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