Consignment

Consignment is a form of sale of goods, in which the owner (consignor) transfers it to the seller (consignee), but retains ownership until the sale. Businesses operating in this scheme are usually referred to as consignment stores. According to the consignment contracts, the seller receives a certain percentage of the revenue, when the items are sold, but takes all the marketing and organizational responsibilities.

Consignment is convenient for the owner of the goods because he can use the seller's existing platform to sell his product, and for the seller - as a way to test the sales of new goods.

A common example of consignment is the transfer of goods for sale in the commission sales outlet for a set period of time. It is the most widespread way of disposal of such goods as artworks, used clothes, footwear, accessories, as well as furniture and home furnishings. This scheme is also used by major online trading platforms, for example, eBay, etc. They place the owner's goods on their sites and take care of the organization of delivery and payment.

Highlights and challenges of Consignment

If the entrepreneur has just begun to operate and starts developing his business practically from scratch, then consignment will help him to sell his products more successfully. For example, a woman knits warm clothes to order. She can sell her things on advertising platforms or on social networks, but it is possible to find a store or a showroom and agree on commission sales.

There is no need to rent space, buy a cash register, hire staff, engage in advertising and attract customers on their own. It is enough to conclude a contract with the store. The outlet will receive a percentage of the sale of things, the buyer a receipt confirming the purchase, and the consignor the net profit minus the percentage due to the store for the organization of sales.

Speaking of the disadvantages of the consignment, it is worth mentioning the risks that the goods may be unsold, which means financial and time losses for the entrepreneur. 

When Сonsignment is used

In practice, this form of commission sale of a variety of goods is quite often used by entrepreneurs. It is a simple, accessible and versatile method of sales, which can be very successful. It can be applied in cases where the business is just beginning to develop and it is necessary to actively seek buyers.

It is possible to sell mass-produced goods in this way, as well as unique products made by hand. For example, clothing, cosmetics, toys, decorative items, construction materials.

Even an ordinary man far from the business can take advantage of consignment, if he has technique, household items, clothing, antiques, which is a pity to throw away.

All this can be put in the consignment store and for some time, the contract will be offered to buyers and, if in demand, sold. You do not need to look for customers, to organize advertising, to select a place for sales, because all this is done for a certain percentage of sales outlets. 

Types of Consignment

Nowadays, there are few classifications of consignment. We will name two of them below.

According to the probability of return of products:

• return contract for the sale of goods;
• transaction with partial return;
• transaction without return.

This type of consignment occurs, if the sale did not take place during the period described in the agreement. In this situation, the transaction can be divided into the listed categories.

Return contract for the sale of goods. When the agreement period is over, the unsold items are returned to the owner.

Transaction with partial return. The features of this type assume that the consignee is required to purchase a certain volume of products (the amount of goods depends on the agreement) at the end of a set period.

Transaction without return. Under this agreement, the consignee is not allowed to return the products to the owner, i.e., the tangible goods must be bought out.

According to the geographical nature of the subjects of the consignment agreement:

• domestic;
• international.

Domestic consignment occurs when the parties are residents of a state.

International type of consignment is the one, where the parties are representatives of different states.