The producers are unable to reach everywhere to sell their produce. They reach their consumers through some middlemen like wholesalers or retailers. They also sign up with other channels for the distribution of their goods. The goods are also made available at different places through agents and agencies. Generally, a producer or a wholesaler appoints agents at different markets or in different parts of the country to sell goods on their behalf in return of the commission. This kind of arrangement is called Consignment.
The contract or an agreement of sending a quantity of goods by the producers or manufacturers of a place to their agents for the purpose of the sale is known as a consignment.
Consignor is the person who sends the goods. Generally, producers or manufacturers are consignors. The person to whom the goods are sent for the purpose of the sale is known as the consignee. The consignor and the consignee share the relationship of a principal and an agent. The consignee operates entirely on behalf of the consignor. The consignee never becomes the owner of the goods. The consignor remains the owner of the goods. If in transit, the goods are destroyed due to unavoidable circumstances then the consignee is not responsible. The consignor has to bear the loss. The consignee sells the goods as per the instructions of the consignor. The consignee earns his commission or his expenses after the goods are sold at the market. It is to be noted that the consignee does not buy the goods, they just receive the possession of the goods on behalf of the consignor.
(image will be uploaded soon)
Types of Consignment
There are two types of consignment:
When goods are sent from one country to another for the purpose of sale, the consignment is called outward consignment.
When the goods are sold domestically for the purpose of sale then it is called inward consignment.
Importance of Consignment
Consignment helps the manufacturers and the producers to bring economies of large-scale production with the increased sale. It generates high sales which result in production on a large-scale and this leads to economies of scale as large-scale production results in a fall in cost per unit.
It is more beneficial for the manufacturers who have many units at different locations in their domestic country or other countries. As in such situations, the local agents have more knowledge of the markets at those places than the manufacturers. So, he generates more profitable sales by approaching local customers.
Due to long-distance, if a prospective buyer is not easily approachable by a producer then the agent plays an important role to establish contacts with them regularly and ensures delivery of goods on time.
Features of Consignment
Consignor sends the goods to the consignee or agent for the purpose of sale at a profit.
The consignor is the principal whereas the consignee acts as an agent.
The consignee does not buy the goods from the consignee. He needs to give the sale earnings to the consignor after goods are sold and not otherwise.
The consignee is not liable for any loss or destruction of the goods but he is responsible to take reasonable care in protecting the goods.
The unsold goods belong to the consignor and not to the consignee. The latter has to return the unsold goods to the consignor.
Only consignor is entitled to any profit or loss for the goods sold by the consignor. The consignee earns the only commission.
Definition of Sale
Sale is a mutual contract wherein the ownership of goods is transferred from the seller to the buyer for a price or compensation.
Features of a Sale
In order to compose a sale, the following elements are important:
Bargain or contract of sale.
Payment or promise of payment of the price.
Delivery of goods.
Transfer the ownership of goods.
Distinction Between Consignment and Sale