What Is a Consignment Agreement?
A consignment agreement is a contract concluded between two parties, the consignor (who agrees to sell goods on behalf of the other party) and the consignee (on whose behalf the sales are being made). The consignor is the merchant and owner of the goods who maintains the ownership even in the case of a consignment contract. It is a person looking to dispose of the products quickly and relatively effortlessly, whereas the consignee has the right to sell those products on behalf of the merchant. This model of trading has received the name of the consignment (consignment shops, consignment goods, etc.). Other names for this agreement are consignment contract, agreement to consign goods, or agreement to sell goods on consignment.
Consignment agreements templates you can download on our site are designed for different types of consignment sales. They can be used for two or three parties, to sell one or many products, and they can be adjusted to be employed in different states.
In any case, a consignment form provides for the terms of the agreement between the consignee, who agrees to sell the good under certain conditions (it may be the deadline for a delivery or a bonus on a deal) and the consignor, who gives the consignee their permission to sell under these conditions. A consignor can ship, or entrust goods to the consignee to be sold to the end customer. This type of business relationship can be very effective and advantageous to both parties, as the consignor saves the time and effort by delegating the task of product distribution, whereas the consignee does not deal with the acquisition part of the process.
One important constituent of the agreement is the nature of the collaboration that allows the consignor not to pay for the consignment until after the end customer acquires the product. This type of agreement is not the same as a distribution agreement. While the consignees do not obtain ownership of the goods, they nevertheless hold or control the goods for a determined period of time.
How Do Consignment Agreements Work?
What is in a consignment contract? First of all, both parties outline their business information, description of the merchandise, pricing, and the way the fees and expenses will be shared. Secondly, they outline their expectations for the collaboration, including the deadlines, and the terms for the delivery.
Some key points for the agreement should include:
- Description of the product;
- Duration of the consignment;
- Description of the venue where the consigned goods are to be sold;
- Commissions for sale; and
- The notice period for consignment termination.
It is a good practice to make sure the contract covers the interests of both parties in case of an unexpected failure. For example, you may consider including a clause on dispute resolution and perhaps a reference to governing law. The Uniform Commercial law governs cases regarding consignment agreements in the United States.