A consignment agreement is created and used for two parties who enter into a business relationship where one party supplies goods while the other party sells the goods. To "sell on consignment" means the seller doesn’t have to pay the supplier until after the product has sold. This arrangement is efficient for both parties as it requires a minimal investment from each side.
The supplying party is the consignor. Consignors benefit from this consignment relationship because they don’t have to expend funds and energy looking for and maintaining an outlet to sell their products.
The selling party is the consignee. Consignees only pay for the products that are purchased by the consumer (unless the "risk of loss and damages" section of the agreement states otherwise).
A consignment agreement is designed to clearly set out the obligations and expectations of each party in the consignment relationship.
The basic components that appear in every consignment agreement include:
- Introduction: This section identifies each party, their role and requirements in the relationship.
- Retail purpose of the parties: This section states the consignor’s role as provider of the products and the consignee’s role as the merchandiser and seller of the products.
- Description of the consigned property: A description of the products the consignor is providing to the consignee. In addition, a statement of the amount of products the consignee will be receiving.
- State the length of time between consignments: A statement of the duration of time the consignor should have possession of the products. This is included in the event some or all of the products don’t sell. Accordingly, this section is a vehicle to return non-selling products to the consignor to make space for products in higher demand.
- Manner and cost of delivery: A statement indicating the price the items should sell for, who pays for delivery and the commission the seller is receives from each sale.
- Risk of loss and damage: The seller and the supplier need to come to an agreement for products that are damaged or stolen in the store. This should be clearly stated in the agreement.
- Termination of the agreement: This section explains who can end the agreement and how much time should be provided. Furthermore, there should be provisions indicating when and how products will be handled upon termination of the agreement.
- Product warranties: If the supplier offers warranties or not, a statement indicating such should be included.
- Arbitration clause: A statement indicating that grievances will be handled by an Arbitrator of mutual agreement.
- Signature block: The final section should be the signature block. This typically contains a line for the printed version of each party’s name and a line for the signature and date.
Consignment agreements can be difficult to understand and implement. In addition to helping you draft a consignment agreement, a business lawyer can assist you with negotiations so your requirements are met.