Consignment and Sale Distinction

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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 for the commission. This kind of arrangement is called Consignment.

 

Definition

The contract or an agreement of sending several goods by the producers or manufacturers of a place to their agents for the sale is known as a consignment. 

The consignor is the person who sends the goods. Generally, producers or manufacturers are consignors. The person to whom the goods are sent for 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.

 

Types of Consignment

There are two types of consignment:

  1. Outward consignment.

  2. Inward consignment.

 

Outward Consignment

When goods are sent from one country to another for sale, the consignment is called outward consignment.

 

Inward Consignment

When the goods are sold domestically for sale then it is called inward consignment.

Consignment's objectives

  • By attracting customers, you will be making large consignments and increasing sales volume.

  • Launching a new product and creating or capturing the market for it.

  • Earning higher revenue for the same product in another geographic area.

  • This will lead to growth and expansion of business.

  • Securing a consolidated marketplace domestically and internationally.

  • Make use of the expertise and talent of the consignee to increase sales.

Consignment Processing

As part of the consignment, the consignor sends the goods to the consignor. As part of the consignment process, the consignee should separate items that will be sold from those that will not (usually damaged or dirty items that might not be able to be sold in some jurisdictions). Although the goods were not sold until they were sold to a buyer, they cannot be treated as a sale until they were sold. Predetermined terms are set for how revenue is distributed from the sales and the length of time goods are held for sale. If the goods are not sold within that period, the consignor reclaims those goods. However, if the period is extended according to the contract, that can be agreed to. In the end, the consignor is paid out of the sales proceeds less his commission and expenses by the consignee.

 

Importance of Consignment

  • Consignment helps the manufacturers and the producers to bring economies of large-scale production with increased sales. 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 ensure delivery of goods on time.

 

Features of Consignment

  • Consignor sends the goods to the consignee or agent for 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 the consignor is entitled to any profit or loss for the goods sold by the consignor. The consignee earns the only commission.

 

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:

  1. Bargain or contract of sale.

  2. Payment or promise of payment of the price.

  3. Delivery of goods.

  4. Transfer the ownership of goods.

 

Distinction Between Consignment and Sale

Basis of Difference

Consignment

Sale

Meaning

When goods are forwarded from the producer or manufacturers to middlemen for sale of such goods on the basis of commission, then it is called consignment.

When goods are sent by a seller to its buyer to receive the value of such goods then it is called a sale.

Ownership

In consignment, ownership is not transferred to the consignee. He works entirely on behalf of the consignor. He only possesses the goods.

In case of a sale, the ownership of goods is transferred immediately to the buyer. 

Relationship

In the case of consignment, the consignor is the principal and the consignee is the agent. 

In the case of a sale, the relationship between the buyer and the seller is that of a debtor and creditor.

Expense

In consignment, the consignee is not responsible for any liability. All expenses incurred during the entire process are borne by the consignor.

In sale, the buyer bears the expenses after delivery.

Order

In consignment, consignors can send goods to the consignee without any order received from the latter.

In sale, the seller sends the goods to the buyer only after getting an order from the latter.

Risk

In consignment, the risk involved in the goods sent remains with the consignor till the consignee sells the goods.

In the case of a sale, the risk of the goods sold is immediately transferred to the buyer.

Return of goods

In consignment, if the goods are not sold then the goods are returned to the consignor by the consignee.

In case of a sale, the goods cannot be returned to the seller once sold. 

Account Sale

In the case of consignment, an account of sale needs to be submitted periodically by the consignee to the consignor.

In case of a sale, no such account of sale needs to be provided to the buyer by the seller. 

FAQs (Frequently Asked Questions)

1. What do you mean by consignment? who are consignor and consignee?

The contract or an agreement of sending several goods by the producers or manufacturers of a place to their agents for the sale is known as a consignment. The consignor is the person who sends the goods. Generally, producers or manufacturers are consignors. The person to whom the goods are sent for sale is known as the consignee. Consignees receive consignments sent by consignors. Consignors send out consignments and consignees receive them. An agent may act on behalf of the consignor, or the consignor may be the consignee. It remains the consignor's responsibility to pay for the goods until the consignor has received full payment from the consignee.

2. What are the two types of consignment?

The two types of consignment are:

1. Outward Consignment: When goods are sent from one country to another for sale, the consignment is called outward consignment. Until the consignor receives full payment from the consignee, the consignor owns the consignment. The goods become the property of the consignee when they are paid in full.

2. Inward Consignment: When the goods are sold domestically for sale then it is called inward consignment.

3. X Sent some goods to Y for sale. X remains the owner of the goods sent and bears all the risk attached to the goods sent. Is it the case of a consignment or sale?

This case is a consignment because in sale the risk is transferred to the buyer immediately as the goods are sold.

4. How consignees are beneficial to the consignors?

Consignees help the consignors by generating more economies for large-scale production. Many times the end customers are not directly approachable to the producers due to long distances. In such situations, the consignees act as agents and establish contacts with the buyers and sell the goods promptly. When the consignor does not have much knowledge about the markets then the consignee comes to the aid of the consignor and facilitates more profitable sales by approaching the local customers.

Benefits for the consignee

  • Only those products which are sold by the consignee must be paid for.

  • The consignee is not always responsible for certain expenses if the agreement specifies that it must.

  • He may earn more revenue if he is familiar with the goods and can sell them faster.

  • There is a higher possibility of earning more revenue if there is huge demand. As he does not need to worry about the shipping fees or the lead times, he does not have to incur any costs.

5. Why should you consider consignment?

Consignors have several advantages

  • Consignors get more sales and margin by assigning their products to experienced and skilled consignees.

  • In cases of default by the consignee, the consignor, since ownership is with him, has the right to reclaim the goods.

  • The consignee receives the goods and takes them into his possession, thus reducing inventory holding costs.

  • Sellers should hire an agent to look after their products and customers if they want to increase sales but don't have the spare time to promote their product.

  • A consignee who knows the buyers, market, product, etc. can sell the goods very quickly. In this manner, the product would expand, the market share would increase, and so on.

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