What Is a Sales Consignment Contract?

A sales consignment contract is a type of business document which is made between an individual who has an item or set of items to sell and another person or a business who is willing to sell said the said item or set of items on their behalf. This type of business comes at a small cost, as the individual who is offering the item for sale should agree to pay the seller a percentage of the sale price or a set fee for their services. Because a sales consignment contract can be a legally binding document, it’s critical that the conditions are clear and fair to all parties.

Benefits of Using a Sales Consignment Contract

Listed below are the benefits that can be had when someone resorts to using a sales consignment contract:

Cost Savings. This is the first advantage of selling through consignment or having a consignment contract. Consignment allows organizations to function more efficiently and it also allows firms to focus on product design and the production process rather than wasting time and money holding their items in-store. This especially rings true given that many organizations are completely new to warehouse management. As a result, engaging a consignee will assist manufacturers in accelerating their enterprises and realizing economies of scale.Locale Expansion. Selling through consignment can also be an advantage as some firms may desire to distribute their products to other sections of the country but are unfamiliar with how those marketplaces work. Employing local agents may result in higher sales since the agents have a better understanding of the local customer base, including their purchasing habits, demand, and patterns. They may tailor marketing methods to the host culture.Better Relationships. Having a consignment contract in place will help especially those business owners who are just new to the game, as they may initially struggle to develop trust and confidence with their clients. On agents who already have ties with their clients due to using a consignment contract, it is advantageous since they already know what their consumers want and have earned their confidence, which will help them increase sales.Instant Availability. Another advantage of using a sales consignment contract is that the consignment items provide no risk to the store, therefore they are immediately placed in front of buyers. As a result, there is frequently no need to hold the items in a storehouse and wait for them to sell. Because the merchants want to observe how the consignment goods sell, they place them right on the aisles in their store, lowering storage expenses.Flexibility. Flexibility on a consignment contract basically means that depending on the items, the provider and retailer might agree on one of two payment forms when selling consignment: upfront payment or profit-sharing. When the upfront payment option is chosen, the consignee owes the consignor a predetermined sum immediately after receiving their consigned merchandise; nevertheless, the balance of the profit, regardless of size, goes to the consignee. When the profit-sharing option is chosen, the profit from sold items between the supplier and the retailer is divided at a previously agreed-upon amount once the goods are sold.Frequent Restocking. A consignment contract benefits both the consignor and the consignee via regular restocking of goods. Consignors refill consignees on a regular basis without tying up cash in inventory. When something gets sold, another consignor steps in to take its place. Each party in this transaction owns a portion of the corporate entity. The items are owned by the consignors, but the distribution is owned by the consignees.Goods Testing. Conventional shopping enterprises may refuse to accept new items for fear of them not selling. With a consignment contract, the consignor is allowed extra opportunities to exhibit their items and observe how they sell.

Important Elements of a Sales Consignment Contract

Here are the key sections that should be included whenever a sales consignment contract is being made:

Parties Involved. This section of the sales consignment contract should clearly indicate the parties involved and include the contract’s date. To define the parties involved, the person delivering the commodities is known as the consigner, while the party selling the property on the consignor’s behalf is known as the consignee.Consigned Goods. This element of the contract outlines the items or property that the consignee is selling on the consignor’s behalf. This should be a full description, which can include the product serial numbers, model, style, purchase date, initial retail price, current retail price, and so on.Recitals. This part of the consignment contract clearly explains the reason why the parties are participating in the contract. This can also be used to indicate the broad retail purpose of the delivered items.Delivery of Goods. This element of the sales consignment contract specifies the delivery dates, the pricing of the consigned products, the person who is liable for shipping charges, and the commission the seller (consignee) will earn for each transaction. This part of the contract should also specify that the item is being delivered only on a consignment basis and explain the risks that the consignor faces in delivering the merchandise, such as loss or damage.Consignment Timeframe. This part clearly defines the initial length of the consignment as well as whether the term will automatically extend if the product is not sold. In other words, this part should include the sales deadlines, as well as the length of time/number of days between the consignment of products in case some or all of the committed items, do not sell. This section may also permit the return of unsold products to the consignor in order to make room for more popular items.Efforts and Obligations. This part of the contract is relatively straightforward since it clearly defines the consignee’s duty to promote and sell the product and establishes reasonable goals that the consignor might have of the consignee.Title to Products. This section of the consignment contract highlights that under a consignment, the consignor retains ownership of the property. This is distinct from other partnerships that exist between manufacturers, merchants, and shops, in which ownership is transferred to the shop when the item is purchased to be exhibited and sold in stores.Payment/Commission. In this section, the percentage or portion of the sale to be kept as a commission by the consignee that the parties agreed upon is clearly stated.Risk of Loss. The risk of loss and damages part of the consignment contract solidifies the consignee’s responsibility once the item of concern has arrived in their custody and should highlight the agreement between the consignor and the consignee regarding the item or set of items that have been damaged during transportation or at the site where they are sold, or if the goods are stolen from the site in which it is being sold. This section also specifies the penalties in the event that the goods are lost or destroyed while in the hands of the consignee.Termination Clause. The sales consignment contract’s termination provision states that either party may terminate the contract at any moment for any reason. In other words, this section should specify how and by whom the contract can be ended, as well as how much notice/time must be provided. This contract’s termination clause should also specify how the consigned products will be handled if the contract is terminated.Severability Clause. The sales consignment contract’s severability provision preserves the details of the contract as a whole even if one element of it is invalidated. In more expanded terms, this part should indicate that if any clause/provision of this contract is found unworkable under the laws of the state in question, the remainder of the agreement/other sections of the contract shall continue in effect. This clause should further indicate that either party’s waiver of any term of this agreement is not a waiver of any other provision.Signatures. One of the final important elements of the sales consignment contract, this section explains that even if some or all of the parties involved sign the contract or portions of it in various locations or via electronic signatures, they are still regarded to be part of the same contract.

How to Sell Products on Consignment Contracts

If you’re a new or a small business owner, chances are you have considered selling some or all of your items through consignment. This enables your business to grow without any hassle of paying additional charges upfront. With that being said, here is how to sell products on consignment:

  • 1. Check the Store’s Compatibility With Your Products

    This is the first step to do when selling items through consignment. In this step, go to the retail store of your choice and spend some time looking around before consigning. Examine its appearance, feel, and look. After that, examine the condition of the products being displayed, how they are displayed, and the costs of comparable products. To maximize compatibility, look for consignment stores that sell the same general sort of products you do to increase your chances of selling.

  • 2. Maximize Traffic and Ensure That Your Products are Displayed

    After checking the store of your choice and entering consignment, this is the next step. If you select a shop that draws a large number of consumers, you will have a higher chance to sell your items quickly. Many consignment businesses come and go rapidly, so always consign with a store that has an established track record and has been in business for a long time. And in order to maximize traffic, even within the shop, you must ensure that your items are in the line of sight of customers who frequent the store.

  • 3. Draw Out a Timetable

    In the third step, this is where you determine a timeline. You need to keep in mind that you should Allow the consignment shop some time to sell your stuff. If they will be unable to sell your stuff within the timetable you’ve given to them, you can make arrangements to have them removed. Perhaps you selected the wrong store selection, or their shop location is inconvenient for you. Whatever the cause, remember that unsold goods will mean that your money is dormant.

  • 4. Determine the Fees

    If you manage to sell some items within the timetable, then great. Now, in this step, make certain you understand the percentage you will receive from the sale. Besides the sales %, find out whether any additional expenses will be imposed on you. Some stores add miscellaneous fees towards the percentage cut, often without alerting the consignee. Be wary of stores that do not provide you with the prices they intend to charge for your purchases. If you are not pleased with the price you are provided, look for another location.

  • 5. Check the Inventory

    It is good practice in selling via a consignment to inquire about how your inventory is managed and when things are paid for. If you’ve chosen shops with computerized inventory systems, there is a chance that they will retain more accurate records. Furthermore, be sure you acquire a receipt for the products brought in, as well as a statement detailing what is sold at the moment of payment. It is also important to determine how well your items are kept in the inventory.

  • 6. Check Your Products From Time to Time

    The final thing you can do is to check your products frequently. Inspect the condition of your goods from time to time, ensuring sure there are no defects, such as blemishes or tears in clothing or fractures in porcelain. When you turn over your product to the business owner, emphasize that it is in excellent shape. In this manner, he or she cannot subsequently inform you that they will not pay for that product because it has been tainted, especially if the goods have been unsold on their shelves for six months.


What is consignment?

Consignment is an agreement in which things are left in the hands of a third party who is allowed to sell them. These sorts of agreements are available on a wide range of things, including artwork, clothes and accessories, and books. While secondhand stores and flea markets are more commonly connected with the concept of consignment, other sorts of retail trade may be considered as a specific form of consignment in which manufacturers rely on retail establishments to sell their items to customers.

Does consignment need insurance?

Yes, consignment needs insurance. In fact, a specific type of insurance exists just for that, which is called consignment insurance. It is a type of insurance that protects against loss or damage to items on consignment, loan, auction, or in the process of transfer. Consignment insurance differs from inventory insurance in that it pays out only if the damage or loss occurs while the property is not actively kept, maintained, or cared for by the owner.

What is the difference between a sales contract and a consignment contract?

The difference is that a sales contract is used whenever you are preferring to maximize profit margins in your business while a consignment contract is used should large-scale production be needed for your business since it can drastically reduce the workload through the help of a consignor.

To recap, a sales consignment contract allows you, as a fledgling business owner or a struggling artist, to let someone else sell your products or your works of art on your behalf. As a token of sorts, the consignee usually takes a small commission of the sales of the product, with the consignor taking the rest of the sales. You can find plenty of examples of this kind of document in this article should you need a reference when you’re drafting one.