A consignment agreement is an agreement between a consignee and consignor for the storage, transfer, sale or resale and use of the commodity. The consignee may take goods from the

consignment stock Consignment involves selling one's personal goods (clothing, furniture, etc.) through a third-party vendor such as a consignment store or online thrift store. The owner of the goods pays the third-party a portion of the sale for facilitating t ...

for use or resale subject to payment to the consignor agreeably to the terms bargained in the consignment agreement. The unsold goods will normally be returned by the consignee to the consignor.

Consignment and distribution agreements

It may be accompanied by a consignment agreement (

Franchising Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses some or all of its know-how, procedures, intellectual property, use of its busine ...

, distributorship or

OEM An original equipment manufacturer (OEM) is generally perceived as a company that produces non-aftermarket parts and equipment that may be marketed by another manufacturer. It is a common industry term recognized and used by many professional or ...

). Goods are stored at the premises of the

distributor A distributor is an enclosed rotating switch used in spark-ignition internal combustion engines that have mechanically timed ignition. The distributor's main function is to route high voltage current from the ignition coil to the spark plugs ...

, or premises of a

third party Third party may refer to: Business * Third-party source, a supplier company not owned by the buyer or seller * Third-party beneficiary, a person who could sue on a contract, despite not being an active party * Third-party insurance, such as a Veh ...

, at distributor's disposal, but remain the property of the

export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...

er. This agreement decreases the exporter's risk because he remains the owner of the commodities in storage. The distributor does not need to pay until he has sold the commodities, so he improves his

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

. Both parties must ensure that the consignment agreement is formulated very carefully, so no room for doubt remains with regard to third parties, specifically the distributor's

creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

s in case of his bankruptcy. The distributor and the exporter have incompatible interests. The distributor's interest will be to increase the amount of the stock in consignment because this has no effect on his cash situation. Therefore the parties should agree on reasonable stock rolling adapted to the

market demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specifi ...

, and consider how quickly the exporter may produce and deliver additional goods in order to avoid stock disruption. Fulfillment of certain conditions is requested by the customs and VAT authorities. Due to the European VAT rules, it is easier to have a consignment stock between EU countries. The distributor is required to keep accurate accounts, but dispensable to have a

bonded warehouse A bonded warehouse, or bond, is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the l ...

Consignment and distribution agreements

See also

References

Further reading