A consignment agreement is an arrangement where you, as a supplier (the consignor) provide your goods to another business (the consignee). You do this for the purposes of selling such goods while retaining ownership of them until they are sold. A consignment agreement sets out the terms and conditions of a consignment arrangement. This article will outline some of the issues to consider when looking to sell your goods under a consignment arrangement. 

What is a Consignment Arrangement?

In a consignment arrangement, you as the consignor retain ownership of your goods until they are sold. This is despite the consignee having possession of your goods. The consignee physically possesses the goods to enable them to: 

  • advertise; 
  • display; and 
  • sell the goods. 

Generally, a consignee acts like an agent, getting a commission for the number of goods they sell on the consignor’s behalf. Therefore, a consignment arrangement can allow consignees to sell goods from a consignor without making any initial investment. They only pay for the consigned goods once they are sold. 

Advantages of Consignment Arrangements 

A consignment arrangement can be advantageous as a supplier. It allows you to place your goods in retail businesses for additional exposure to potential customers instead of 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 are returned at any time, subject to the terms and conditions of your consignment contract. 

Such an arrangement can also be an attractive proposition to consignees as they can stock your goods without any initial investment. Further, consignees have an incentive to advertise and sell your goods to be paid a commission from you. 

Consignment Agreement 

If you are looking for a business to assist you with selling your goods through a consignment arrangement, it is important to have a well-drafted consignment agreement in place. 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 the risk of an issue. 

Your consignment agreement should set out the following key clauses. 

Consigned Goods

Your consignment agreement should include details of the consigned goods, including: 

  • any specific model numbers; 
  • any serial numbers; 
  • how many units of each item you will provide; and 
  • agreed retail sale price. 

Delivery of Goods

It is important to be clear how and when you will deliver your goods to the consignee and also state who bears the responsibility for the costs of delivering the goods.

Title and Risk

Your consignment agreement must outline that you will retain your goods’ legal title or ownership until the consignee sells your goods to a third party customer. At which point they will then assume title of the goods. While you retain title to the goods, the risk in the goods can pass to the consignee upon delivery so that they are responsible for the goods while they are in their possession. This ensures that the consignee is responsible for maintaining the products while they are in the possession of the consignee. 

Therefore if your goods are damaged while in possession of the consignee, 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. Due to a consignment arrangement’s nature, it is in the consignee’s best interests to market and advertise your goods to receive payment. However, you may wish to state any responsibilities or obligations clearly that you would like to impose on the consignee. 

For example, you may require the consignee to go beyond simply stocking your goods in their store and promote your goods. 

Payment

You should stipulate within the consignment agreement how payment will work. You should consider whether you will pay the consignee a commission that is a fixed fee per sale they make or whether the commission is a percentage of the sale they make.

Termination

A termination clause within your consignment agreement should explain how either party may end the consignment arrangement and for what reason they may end such arrangement. Further, it should indicate what happens if either 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) that you provide to a consignee on consignment is a great way to legally register your security interest over your goods. Registering your security interest on the PPSR can protect you and ensure that your goods are returned to you in the event that the consignee goes insolvent. 

Key Takeaways

A consignment arrangement can be a great way to engage a business to advertise and sell your goods. It is important to have a well-drafted consignment agreement in place to ensure you are protected, and the arrangement with the consignee is clearly set out to mitigate any risks. If you need assistance with drafting or reviewing your consignment agreement, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

What is a consignment arrangement?

A consignment arrangement is where a supplier (the consignor) provides goods to another business (the consignee) for the purpose of selling such goods while keeping ownership of them until they are sold. 

I am a supplier. What are the benefits of a consignment arrangement?

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. 

What should I include in a consignment agreement? 

A consignment agreement should set out the relationship between you and the consignee. It should also specify the procedure for the sale of goods and help to mitigate the risk of an issue.

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