What is Consignment Sale?

First, a consignment is NOT a sale. It creates an agency relationship between the consignor and the consignee, where the product, goods or produce continues to belong to the consignor until the consignee sells it on the consignor’s behalf.
A Consignment Sale is a trading arrangement in which a seller sends goods to a buyer or reseller who pays the seller only as and when the goods are sold. A consignor who consigns goods to a consignee transfers only possession, not ownership, of the goods to the consignee. The seller typically remains the owner (title holder) of the goods until they are paid for in full and, can after a certain period, take back the unsold goods. This arrangement is also called a Guaranteed Sale, sale or return, or goods on consignment.

You can see the inherent problem with these Sales Terms if you are a small manufacturer, wholesaler or importer dealing with a large retailer. You don’t want the goods back (you want your money) and if they do come back there is a very good chance the product will no longer be of first quality. Also, what if your customer files bankruptcy with your consigned goods in their possession? Lawyer Jeffrey Wurst has a very good blog on Protecting Rights in Consigned Goods.

On a side note, be careful of a retailer offering you 180-day terms on a trial order. This is a de facto Consignment Sale and not typically financeable. This is also a very risky proposition.

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