A consignment agreement is an arrangement where you, as a supplier (the consignor) provide your goods to another business (the consignee). You may choose to do this for the purposes of selling such goods while retaining ownership until they are sold. A consignment agreement sets out the terms and conditions of a consignment arrangement. This article will outline some issues to consider when looking to sell your goods under a consignment arrangement.
What is a Consignment Arrangement?
In a consignment arrangement, you, the consignor, retain ownership of your goods until the sale is finalised. This is despite the consignee having possession of your goods.
Generally, a consignee acts like an agent. They receive a commission for the number of goods sold on behalf of the consignor. However, they only pay for the consigned goods once they sell them.
Advantages of Consignment Arrangements
A consignment arrangement can be advantageous as a supplier. It allows you to place your goods in retail businesses and gain additional exposure to potential customers. This is an excellent alternative to storing your goods in a warehouse. Further, it can allow you to test the demands of a particular market of customers without needing to invest in extensive advertising or marketing.
A consignment arrangement can also be an attractive proposition as it allows you to request that your goods be returned at any time, subject to the terms and conditions of your consignment contract.
Such an arrangement can also be attractive to consignees. Here, the consignee can stock your goods without any initial investment. Further, consignees have an incentive to advertise and sell your goods to receive a commission from you.
Continue reading this article below the formWhat Should Be in a Consignment Agreement?
You should have a well-drafted consignment agreement prior to consigning your goods. Such an agreement will:
- set out the entire relationship between you and the consignee;
- specify the procedure for the sale of the goods; and
- mitigate some of the key risks that may arise.
Your consignment agreement should set out the following key clauses.
Consigned Goods
Your consignment agreement should include details of the goods you are consigning, including:
- any specific model numbers;
- any serial numbers;
- how many units of each item you will provide; and
- agreed retail sale price.
This will help both parties to identify the goods in the arrangement and set expectations.
Delivery of Goods
It is important to be clear on how and when you will deliver your goods to the consignee. Additionally, you should detail who is responsible for the costs of delivering the goods. For example, you may outline that any delivery estimates provided are a guide only and cannot be relied upon. Furthermore, you should clarify who is responsible for damage to the goods during delivery.
Title and Risk
Your consignment agreement should state that you will retain legal title or ownership until the consignee sells your goods to a third-party customer. Once the consignee sells the goods, the customer assumes title of them. While you retain title to the goods, the risk in the goods can pass to the consignee upon delivery. Thus, they are responsible for the goods while they are in their possession. Therefore, your consignment agreement can require the consignee to compensate you for any damage.
Obligations and Responsibilities
It is crucial to clearly outline the consignee’s obligations or responsibilities within your consignment agreement. For example, it is in the consignee’s best interests to market and sell your goods to receive payment.
However, you may wish to impose specific responsibilities or obligations on the consignee. For example, you may require the consignee to go beyond simply stocking your goods in their store and promoting them. You may require them to:
- pay duties or freight charges attached to the goods;
- inspect shipments for damage; and
- if they find damages, handle the claim process.
Payment
You should set out the payment process within the consignment agreement. Accordingly, consider whether you will pay the consignee a commission that is:
- fixed fee per sale; or
- a percentage of the sale.
You should also outline payment timeframes and invoicing requirements.
Termination
A termination clause within your consignment agreement is essential. It should explain how either party may end the consignment arrangement and for what reason they may end it. Further, it should indicate what happens once a party terminates the agreement, including:
- when and how the consignee should return any unsold goods; and
- how long the consignee has to return your goods.
Should I Register My Goods On the PPSR?
Registering your goods on the Personal Property Securities Register (PPSR) and providing this information to a consignee on consignment is a great way to register your security interest over your goods legally. In addition, registering your security interest on the PPSR can protect you and ensure that your goods are returned to you if the consignee becomes insolvent.
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Key Takeaways
A consignment arrangement can be a great way to engage another business to advertise and sell your goods. It is essential to have a well-drafted consignment agreement in place to ensure you are protected and the arrangement. Furthermore, your contract should include procedures to mitigate any risks of disputes.
If you need help drafting or reviewing your consignment agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
As a supplier, the arrangement is beneficial as you can place your goods in retail businesses for additional exposure to potential customers instead of storing your goods in a warehouse. It can also provide an opportunity to test the demands of a particular market of customers without investing in advertising or marketing.
This is a procedural feature of the consignment arrangement, which allows shipments of consigned goods to be tracked. It is a unique number used during the freight process to identify the goods, the people sending and receiving them, and the shipping process’s details.
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