Terms of Consignment

Bookmark added to your notes.
View Notes

What is Consignment?

Consignment is the arrangement of a system where the goods are left in the possession of an authorized third party to sell those particular goods. Generally, the consignor is the one who receives a percentage of the revenue from the sale, at times a good percentage, this is known as his commission.  

Consignment is done in many cases such as artwork, clothing, accessories, and also to sell books. The retail sales at times can be perceived as a special form of consignment where the producers rely on the retail stores to sell their products to the end consumers, the second-hand stores and the thrift stores are moreover engaged with the practice of consignment.

Understanding the term ‘Consignment’ 

We will understand precisely about the term ‘consignment’ in the following points:

  • Consignment is an arrangement where the goods of the producers are left with a third party to sell may be the retailers.

  • The party who sells the goods on consignment receives a portion of the sum of profit, either as a flat and fixed rate fee or commission.

  • Selling through a consignment arrangement can be of a low-commission, with low-time-investment way of selling items or services.

  • Most of the consignment shops and online dealers will offer the terms, while some will negotiate.

  • Consignment is advantageous to those who don't own a physical store or online marketplace in which to sell their goods.

Terms of Consignment

The Manufacturers and the Wholesale dealers come in terms of consignment as they find it very profitable to sell their goods through an agent. An agent who sells such goods on behalf of the consignor and the risk the remains with the consignor or principal. 

The Goods that are sent by the consignor are known as the outward consignment outward, while the goods received by the consignee are known as the inward consignment. The relationship between the consignor and consignee is of a principal and agent only. The terms of consignment must be well known by an accountant. Terms like the following is prevalent while learning commission:

  • Trade Consignor:

Trade consignor is the person or the producer of goods who sends the goods to the consignee or to other agents like a manufacturer or the wholesale dealer.

  • Consignee:

Consignee or agent is the person to whom the goods are sent. Goods received by the consignees to resell are known as inward consignment.

  • Ordinary Commission:

The ordinary commission is the normal fees that is payable by the consignor to the consignee for the sale of goods. While, if there is no guarantee for the collection of money from the consumer then the percent of the commission is much lower in such case.

  • Del Credere Commission:

Del Credere Commission is the additional sum of payment which the consignor pays to the consignee to do extra than just selling like for taking the responsibility of collection of debt from the customers.

  • Account Sales:

This is a periodical statement where a consignee prepares and sends the same to the consignor. This statement contains all the details of sales (whether sold by cash or through credit), Expenses incurred, and the amount of commission which is due in particular items, goods destroyed in transit.

  • Proforma Invoice:

‘Proforma invoice’ is sent by the consignor in the form of an invoice to the consignee. The Proforma Invoice contains the details regarding the nature of goods, the quantity of such goods, the weight of the goods, and other measurements related to the particular goods, its price and other details are specified in a proforma etc.

FAQ (Frequently Asked Questions)

1. Who is a Consignor?

Ans. The goods when sent by the manufacturer or by the producer to the buyer leads to consignment. In consignment the owners of the goods sent to the agents in other locations, the goods which are sent in this process are referred to as consignment while the sender is called the consignor.

2. What is Retail Selling?

Ans. A retail sale occurs when a particular business sells its own product or service to another individual consumer for his own consumption. This transaction can occur through a number of sales channels, like online, in a brick-and-mortar storefront, through direct sales, or via the direct mail.

3. Why Have these Consignment Shops Become So Popular Nowadays?

Ans. Consignment shops are those shops who sell infant wear, pet care products, high fashion items etc. Today’s generation is known for their thrift spending habit, they go in the favour of bargaining and buying, and this is facilitated by these consignment shops. In a survey it was found that there is a rise in the student debt, stagnant wages thus, these factors push the younger shoppers shopping in the consignment shops who facilitate discounted products.

4. What is a Consignment Fee?

Ans: Consignment shops have a standard fee schedule which indicates the percentage of the sales price that is paid to the shop and the percentage that is paid to the seller which is known as the consignment fee.