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Consignment involves selling one's personal
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
(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 the sale. Consignors maintain the rights to their property until the item is sold or abandoned. Many consignment shops and online consignment platforms have a set day limit before an item expires for sale. Within the time of contract, reductions of the price are common to promote the sale of the item, but vary on the type of item sold (usually depends on the price point, or if it is considered luxury.)(usually 60–90 days). Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is responsible for distribution or retail operations. The verb "''consign''" means "to send" and therefore the noun "''consignment''" means "sending goods to another person". In the case of "''retail consignment''" or "''sales consignment''" (often just referred to as a "consignment"), goods are sent to the agent for the purpose of sale. The ownership of these goods remains with the sender. The agent sells the goods on behalf of the sender according to instructions. The sender of goods is known as the "''
consignor The consignor, in a contract of carriage, is the party A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or ce ...
''" and the agent entrusted with the custody and care of the goods is known as the "''
consignee {{Admiralty law In a contract of carriage, the consignee is the entity who is financially responsible (the buyer) for the receipt of a shipment. Generally, but not always, the consignee is the same as the receiver. If a sender dispatches an it ...
''".


Concept

Consignment (Latin ''consignatio'': securitization, document) is a traditional legal and accounting technical term for logistics and business management and describes a special form of delivery of goods.


Three conditions must be fulfilled to be consignment trade

1.) The supplier makes goods physically available to the sales agent in contracted quantities for trade or consumption. :* It is a type of sales procedure where the risk lies with the supplier and allows the agent to concentrate on sales and does not need capital to cover the goods. ::* It is used by suppliers who lack their own sales resources. :::* By providing the customer with a stock, the supplier encourages consumption and sales. 2.) The sales agent always receives the payment from the third party (else it is another form of sales schemes) :* The supplier is usually paid by the sales agent when the goods are sold and are paid for by the third parties. :* The agreement typically, but not necessarily, includes a continuous replenishment of supplies for the sales inventories. 3.) Ownership is still with the supplier. :* This means that the stock represents a form of credit from the supplier and a debt for the sales agent. :* In legal disputes or bankruptcies, it is the supplier's and not the sales agent's property.


The procedure is traditional and still often practiced.

* Shipping business, in its traditional form, often consists of consignment arrangements where a captain sells and buys on behalf of another party in a far port. * Securities trading via a securities depository is form of consignment arrangement * Auction houses usually conduct their business through a form of consignment arrangement * Franchise schemes are often a form of consignment schemes. * Home sales schemes are often a form of consignment schemes. * Second-hand markets can be venues for consignment trade.


Some other cases are not consignment trade

* Real estate agents are not working on consignment scheme. The agent is just the arranger of the business, the contracts are written directly between the first and the third party (due to real estate registration and tax issues) * Cross border triangular trade with a sales agent is usually not consignment trade. This is because the goods typically never leave the supplier, who sends the goods directly to the third party customer. :* The traditional form of shipping business, where a captain sells and buys on consignment schemes on behalf of another party in a distant port from another nation, is generally no longer possible, due to customs and VAT regulations.


International consignment trade decline has affected everyday language expressions.

Internationally, this previously common form of international consignment trade is now quite rare. This is because there are major legal, tax-related, and accounting difficulties in conducting cross-border consignment trade. Modern uses of consignment are typically domestic.


In law and accounting, the expression is still very precise.

In business law and accounting, the concept of consignment trade has particular meaning. It is important for the lawyer and the bookkeeper to have a clear idea of what consignment trade is, in order to be able to report it correctly, and assert the parties' rights and obligations, even if the concept of consignment trade is not specified in the agreements. The legal conditions of consignment trade have been clear since ancient times.


Consignment in inventory control

Consignment inventory is a stock control model whereby the retailer sells the goods but the ownership remains with the supplier only till the products are sold. The retailer therefore only pays for the products he has sold and he is not required to purchase the goods. Beforehand, the two parties may have sign a
consignment agreement 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 for use or resale subject to payment to the consig ...
with the terms like how long will the unsold goods take before being returned.


Features

*In consignment agreement the possession of goods transfer from one party to another. *The relation between the two parties is that of
consignor The consignor, in a contract of carriage, is the party A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or ce ...
and
consignee {{Admiralty law In a contract of carriage, the consignee is the entity who is financially responsible (the buyer) for the receipt of a shipment. Generally, but not always, the consignee is the same as the receiver. If a sender dispatches an it ...
, not that of buyer and seller. *The consignor is entitled to receive all the expenses in connection with consignment. *The consignee is not responsible for damage of goods during transport or any other procedure. *Goods are sold at the risk of the consignor with profit or loss belonging to the consignor only. A consignor who consigns goods to a consignee transfers only possession, not ownership, of the goods to the consignee. The consignor retains title to the goods. The consignee takes possession of the goods subject to a trust. If the consignee converts the goods to a use not contemplated in the consignment agreement, such as by selling them and keeping the proceeds of the sale for the consignee, the crime of
conversion Conversion or convert may refer to: Arts, entertainment, and media * "Conversion" (''Doctor Who'' audio), an episode of the audio drama ''Cyberman'' * "Conversion" (''Stargate Atlantis''), an episode of the television series * "The Conversion" ...
has been committed. The word ''consignment'' comes from the
French French (french: français(e), link=no) may refer to: * Something of, from, or related to France ** French language, which originated in France, and its various dialects and accents ** French people, a nation and ethnic group identified with Franc ...
''consigner'', meaning "to hand over or transmit", originally from the
Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through ...
''consignor'' "to affix a seal", as it was done with official documents just before being sent. # in return for the service of consignee, commission is paid to him by Consignor


Second-hand shops

"Consignment shop" is an American term for shops, usually second-hand, that sell
used good Used goods mean any item of personal property offered for sale not as new, including metals in any form except coins that are legal tender, but excluding books, magazines, and postage stamps. Risks Furniture, in particular bedding or upholstere ...
s for owners (consignors), typically at a lower cost than new goods. Not all second-hand shops are consignment shops, and not all consignment shops are second-hand shops. In consignment shops, it is usually understood that the
consignee {{Admiralty law In a contract of carriage, the consignee is the entity who is financially responsible (the buyer) for the receipt of a shipment. Generally, but not always, the consignee is the same as the receiver. If a sender dispatches an it ...
(the seller) pays the
consignor The consignor, in a contract of carriage, is the party A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or ce ...
(the person who owns the item) a portion of the proceeds from the sale. Payment is not made until and unless the item sells. Such shops are found around the world. They can be chain stores, like the Buffalo Exchange or individual boutique stores. The consignor retains title to the item and can end the arrangement at any time by requesting its return. A specified time is commonly arranged after which if the item does not sell, the owner is expected to reclaim it (if it is not reclaimed within a specified period, the seller can dispose of the item at discretion). Merchandise often sold through consignment shops includes antiques, athletic equipment,
automobile A car or automobile is a motor vehicle with wheels. Most definitions of ''cars'' say that they run primarily on roads, seat one to eight people, have four wheels, and mainly transport people instead of goods. The year 1886 is regarded ...
s,
books A book is a medium for recording information in the form of writing or images, typically composed of many pages (made of papyrus, parchment, vellum, or paper) bound together and protected by a cover. The technical term for this physic ...
,
clothing Clothing (also known as clothes, apparel, and attire) are items worn on the body. Typically, clothing is made of fabrics or textiles, but over time it has included garments made from animal skin and other thin sheets of materials and natura ...
(especially children's, maternity, and wedding clothing, which are often not worn out),
furniture Furniture refers to movable objects intended to support various human activities such as seating (e.g., stools, chairs, and sofas), eating ( tables), storing items, eating and/or working with an item, and sleeping (e.g., beds and hammocks) ...
,
firearms A firearm is any type of gun designed to be readily carried and used by an individual. The term is legally defined further in different countries (see Legal definitions). The first firearms originated in 10th-century China, when bamboo tubes ...
,
music Music is generally defined as the art of arranging sound to create some combination of form, harmony, melody, rhythm or otherwise expressive content. Exact definitions of music vary considerably around the world, though it is an aspe ...
,
musical instrument A musical instrument is a device created or adapted to make musical sounds. In principle, any object that produces sound can be considered a musical instrument—it is through purpose that the object becomes a musical instrument. A person who pl ...
s,
tool A tool is an object that can extend an individual's ability to modify features of the surrounding environment or help them accomplish a particular task. Although many animals use simple tools, only human beings, whose use of stone tools dates b ...
s,
paraglider Paragliding is the recreational and competitive adventure sport of flying paragliders: lightweight, free-flying, foot-launched glider aircraft with no rigid primary structure. The pilot sits in a harness or lies supine in a cocoon-like ...
s and toys.
eBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became ...
, drop-off stores and online sellers often use the consignment model of selling. Art galleries, as well, often operate as consignees of the artist. The consignment process can be further facilitated by the use of vendor managed inventory (VMI) and
customer managed inventory In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange f ...
(CMI) applications. VMI is a business model that allows the vendor in a vendor-customer relationship to plan and control
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the sha ...
for the customer, and CMI allows the customer in the relationship to have control of inventory. Consignment shops differ from charity or thrift shops in which the original owners surrender both physical possession and legal title to the item as a charitable donation, and the seller retains all proceeds from the sale. They also differ from
pawn shop A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been ''pawned'' to the broker are themselves called ''pledges'' o ...
s in which the original owner can surrender physical possession (but not legal title) of the item in exchange for a loan and then reclaim the item upon repayment of the loan with interest (or else surrender legal title to the item), or alternatively can surrender both physical possession and legal title for an immediate payment; the pawn shop would retain all proceeds from any subsequent sale. In the UK, the term "consignment" is not used, and consignment shops that sell women's clothing are called " dress agencies". Although the other types of consignment shop exist, there is no general term for them.


Procedure

A consignor brings their second-hand items in to be reviewed. After the review, the consignee will return those items deemed unsuitable for resale to the consignor (such as torn or dirty items or items deemed to be fakes, which cannot be sold in some jurisdictions), accept those to be resold, and establish the target resale price, the consignee's share of it, and the length of time the items will be held for sale. When a consignor's items sell (or in some cases, after the agreed-upon period ends), the consignee takes a share of the profits and pays the consignor the share. Items that are not sold are returned to the consignor (who must retrieve them within a set time or forfeit title to them; in some cases, the consignor may agree ahead of time to allow the consignee to donate them to charity).


Accounting

When a vendor (consignor) provides goods on consignment to a distributor (consignee) then revenue cannot be recognized when control has transferred. This could occur at the expiration of a specified consignment period, or the sale of an item to an end-consumer. The SEC has provided examples of consignment arrangements in question 2 of SAB Topic 13.A.2 including the following: * A customer's obligation to pay is implicitly excused until consumption or sale * The seller has an obligation to bring about resale * A repurchase price exists that will be adjusted for holding costs and interest Accounting Standards Codification (ASC) 606-10-55-80 (implemented for public companies December 15, 2017) provides three indicators of the presence of consignment arrangement that provides the principles behind the examples that the SEC has outlined. These indicators are as follows: * The vendor controls the product until a specified event occurs, such as the sale to an end-customer, or until a specified period expires. * The vendor is able to require the return of the product or transfer of the product to a third party. * The consignee does not have an unconditional obligation to pay for the product (although it may be required pay a deposit). This list of indicators of a consignment arrangement is not all-inclusive, so companies should also consider other indicators of the transfer of control found in ASC 606-10-25-30.


See also

*
Consignment agreement 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 for use or resale subject to payment to the consig ...
*
Manufacturing Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
*
Distribution Distribution may refer to: Mathematics * Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations *Probability distribution, the probability of a particular value or value range of a vari ...
*
Logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of ...
,
Transport Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land ( rail and road), water, cable, pipelin ...
ation * Just in time * Vendor-managed inventory * Scan-based trading


References


Further reading

*


External links

* * Example online consignment stor
After Burn
{{Authority control Retail processes and techniques Payment methods in retailing Financial accounting