Provisions that should be in a Consignment Agreement

Previsions you should include in a Consignment Agreement

A consignment agreement is a contract between the consignor and the consignee and should include some basic provisions.  As with all business arrangements, it is important to avoid any ambiguity and the agreement should include a number of provisions that are meant to clarify and protect both parties in this type of business arrangement.

Parties  

This is pretty straightforward.  The agreement needs to provide the names and addresses of the consignor and the consignee.  This should include the business and business owner information to provide a clear identity of the parties involved.

Item(s) for sale

 

This section should clearly identify and describe the item(s) for sale.  This should be detailed so as to clearly identify the items and could include things like Brand name and model number if possible.  It should not be a generic description such as “Housewares” or Clothing but should be more specific so as to avoid ambiguity.  

Pricing 

 

The contract should state the sale price of the items The agreement could also give the consignee the right to discount the item's price with or without the consignor's approval depending on the stipulation and should also state how the discount will be applied to each party.  For example 20% discount after 6 months with each party absorbing a 10% discount.  We recommend that approval from both parties so as not to run into surprise discounts that may affect profitability for the consignor.

Payment

 

The consignee has the right to and normally collects payment from the buyer and must pay the consignor the balance due after the consignee's fees or commission is subtracted. The contract should state the frequency or waiting period before the consignee has to make payment to the consignor.

Returns

 

 

 Returns are a normal part of doing business and should be taken into consideration.  The agreement should outline what happens when returns are made by customers. You should consider scenarios when a return occurs both before and after payment is made to the consignor for the good. The consignee will usually have a return policy but you can have a different policy for consignment goods.

Expenses

The agreement should state what if any expenses the consignee is responsible for as well as any expenses that the consignor is responsible for.  For example transportation costs for delivery to the consignee store, utility expenses if the goods use electricity or other expenses tied to the sale and display of the consignor’s goods.

Record-keeping

 

The consignee is responsible for keeping records relating to the consignment and sale of the goods.  It is important however that both parties keep accurate records of items delivered and returned and current inventory of the consignor's goods currently with the consignee.

Ownership

The sale of goods using consignment normally establishes that the consignor is the actual owner of the item for sale and the consignee is responsible for its care and for any loss or damage to the item while in the consignee's possession.  Although these items should be clearly specified such as in the case of loss or theft or damage.

Insurance

The consignee is usually required to carry insurance that will cover the consigned item.  This item should however be specified in the agreement and should include the policy information and coverage of the goods to avoid surprises.

Termination 

The agreement needs to include how the contract can be terminated, who can terminate the agreement, and the conditions under which the agreement can be terminated.  It can include a set period of time and should outline the steps and obligations after the termination of the contract such as goods left with the consignee after termination.

As with any agreement, it is crucial to ensure that every aspect of the consignment arrangement be clearly documented and the contract is where all of those details are outlined.  It is important to have a signed agreement in place whenever business arrangements are made and the consignment is no exception.  Standard agreements can be found online, but sometimes more specific previsions are required.  Both parties will benefit from a clear agreement between the consignee and consignor.

John Lippa May 11, 2022