Consignment is an action in which the goods are given to another person for subsequent sale. Most likely, at least once in a lifetime, each person sells something through acquaintances, gives them to the store for a certain period for the purpose of subsequent sale. Another consignment can be called a commission sale.
According to the terms of the consignment agreement, the owner of the goods remains the one who gives the products for sale, the seller (consignee) is an intermediary between the manufacturer and the buyer, for which he receives a certain percentage of the transaction.
Consignment: the term concept
The simplest example for understanding the term “consignment” is the work of a store with handmade souvenirs or a thrift store. The process involves three parties: a craftsman making souvenirs, a store serving as a showcase and attracting a buyer, and a buyer who decides to purchase a product. Between all three parties, the terms of the transaction are concluded: the craftsman gives his products to the store for a certain period of time, after which he receives either money or return the products, the buyer receives a purchase receipt and the souvenir and the store receive a commission for the activities from the transaction.
What is convenient consignment
Consignment is a convenient start for a novice entrepreneur:
- There is no need to invest in the purchase of goods.
- Warehouse packing risks are minimized.
- The consignee is not responsible for the sale of goods.
- After the expiration of the consignment period, the goods are returned to the owner.
- Markup on the goods is determined by the consignee.
The terms of the consignment agreement are no less interesting for the owner of the goods:
- The owner remains the owner of the goods until the time of sale and can control it.
- The unrealized product is returned to the owner in an undamaged condition, i.e., the consignee is responsible for the safety, presentation, commercial quality for the period of the contract.
- The owner in standard cases does not bear material costs for logistics, consignment is the minimum financial cost for the owner of the goods.
- Upon receiving the goods back, the owner of the goods may sell them at his discretion.
Types of Consignment
In a consignment agreement, a transaction is concluded between the owner of the goods (exporter) and the seller (exporter). The owner transfers the goods to the warehouse to the seller on certain conditions specified in the contract. The term of the contract determines the period of interaction between the parties and can be unlimited, the duration of the consignment conditions is negotiated by the parties for each type of product / product / service. There are several types of consignment, the most common of them:
- Return Policy Handing over the goods for consignment, they stipulate a certain time period through which the goods must either be sold or transferred back to the owner. This is a fully refundable consignment.
- Partial return consignment. The conditions are stipulated under which the seller undertakes to redeem part of the goods after the expiration of the consignment period (it does not matter whether it is sold or not).
- Complete irrevocable consignment. After the expiration of the consignment conditions, the goods cannot be returned to the owner of the goods, but must be fully paid by the consignee.
The consignment agreement may be regional or international. International treaties additionally prescribe the terms of currency transactions.
Underwater rocks
The problem of any contract relating to the sale of goods is the risk that it will remain unsold, since the owner of the goods has financial interests in the transaction and the seller too. Often this is the background of the overestimated cost of the product, and the product cannot be sold. Therefore, participants in the transaction must find compromise options for cooperation, in which the owner of the goods reduces the cost, and the seller appetites for commission interest. Another compromise option is the timing of the sale of goods, especially if the product is new to the market and there is no advertising support.
When consignment is needed
What gives an ordinary person who is not involved in the production process consignment? Example: you have accumulated clothes, household items, appliances that are a pity to throw away, but you can’t sell them yourself. It can be handed over to the thrift store, where the consignment agreement is concluded, according to which the items you handed over will be sold within a certain period. At the end of the consignment period, money will be returned to you for the sold and unrealized things, while the cooperation agreement can be extended and the consignment agreement completed.
The second example: you like to do something with your hands and made some beautiful little things. You realize them yourself, but it distracts you from the creative process, or there are already many works that have accumulated, and they need life in other hands. This is also the case in which it is possible to conclude consignment deals with specialized stores.
What is important in the contract
Consignment is a contract in which it is important to prescribe all the conditions under which the parties regulate legal and financial relationships. This is a map that helps the parties find a compromise before the start of the common work and the opportunity to resolve disputes in the legal field.
The consignment agreement has certain characteristics:
- the exporter instructs the exporter to sell his goods on certain conditions;
- Consignment dates are determined;
- the exporter remains the owner of the goods until the consignor transfers the goods to the final buyer and the exporter receives the full value of the goods specified in the contract;
- the amount of the commission to the consignor is specified in the contract under the specified conditions (% of the total amount of goods sold or partial% of sales, etc.);
- goods that are not sold on time shall be returned to the exporter at the expense of the exporter, unless other conditions are agreed upon;
- the parties are entitled to add additional conditions to the existing contract until it is signed by both parties.
When concluding consignment agreements, it is worth considering that the consignment agreement is not regulated by the legislation of the Russian Federation.
