Simply stated, a consignment agreement template is a contract between two parties where the products/goods of one are sold on behalf of the other. The ownership of the goods/products though is still retained by the first party. The original owner is referred to as the Consignor and the seller is the Consignee. Under this agreement, the goods are shipped or are entrusted by the Consignor to the Consignee, who in turn is tasked to sell the products to end customers. Payments by the Consignee will be remitted to the Consignor only after the goods have been purchased by customers.
This agreement should not be confused with a Distribution Agreement because, in the former agreement, the Consignee does not retain ownership of the goods. He acts as some type of middleman, where goods are held temporarily by him until these goods are disposed of through purchases. It is best to reiterate that the Consignee never has ownership of the goods even though such are in his possession. The Consignor can even request that, at after an agreed time frame, the goods are shipped back to him. It will all depend upon the terms and conditions of their consignment contract.
For the Consignor, whether he is one person or a company, there is a need to have a consignment agreement because such will ensure his possession of the products being consigned. Consignment eliminates the need to sell the products on an invoice basis. It would also be disadvantageous to the consignor, especially if the goods are highly valued, that the Consignee might not be able to pay the Consignor until the goods are sold to the customer.
Basically, you use a consignment agreement form if your business involves selling products and that you’d like someone to sell such products on your behalf. For a more formal business deal, the terms and conditions of the agreement should be outlined by both parties. Further provisions can be added to the agreement as it is flexible in its contents. If there should be circumstances out of the ordinary, always seek the advice of a lawyer. Read on to learn more about this kind of agreement.
What happens when a supplier is faced with a surplus of stocks which he needs to shift but cannot? Several reasons could contribute to this predicament: maybe retailers have no or lack interest to buy such stocks up-front or maybe the brand has not yet exerted itself in the market or maybe there is an apprehension on the retailer’s part that the product might not sell.
A good action for the supplier is to enter into a consignment agreement. In engaging in one, think of advantages and/or incentives for both parties. But also be aware of the potential problems that would be encountered. Here are some benefits of making a simple consignment agreement:
Honesty in terms of the stocks
There should be a good rapport between the parties. The supplier can benefit from this through the use of the retailer’s market space, specifically how their products could be displayed to attract potential buyers. Having the goods relegated to some bargain basement certainly would not be acceptable to the supplier. The supplier and retailer need to consider these factors when dealing with the products presentations:
For insurance purposes
Questions on insurances will also be dealt with by both the retailers and suppliers. The former should check with his insurance company if the consigned goods are covered by his current policy and if his accepting such would invalidate his insurance. In case this inquiry is in the negative, the supplier may consider himself part of the insurance policy. They should have a copy of the insurance policy, making certain that they are covered for the loss or the damage of their products.
For accounting for the stock which is on consignment
Established accounting procedures should be in place for incoming and outgoing stocks. Accomplishing a regular report to the supplier by the retailer should detail how much of the stock has been sold and the expected payments to be remitted periodically.
To save on inventory costs
This is definitely a retailers bonus. Since the retailer is not providing capital for this venture, he doesn’t have to pay the supplier until the products are sold to the customers. This advantage surely will improve his cash flow.
To get the product in front of customers
Since the retailer isn’t giving out any capital for the supplier’s products, it would be easier for the latter to convince the retailer to stock the supplier’s product. This would also give some leeway to the supplier to display products that need to be in front of the customer for easier sales where the customer can touch, taste or test the products before purchase.
To be able to restock as it sells
This is an advantage to both the supplier and the retailer. To avoid lag times between selling stocks and ordering new ones, keeping the store restocked will be for both parties’ interests. Inventories for a product should be replenished as soon as it sells. Waiting for new stocks to arrive when a product has been sold out is business lost and this is what consignment business should avoid.
It enhances a better relationship between the supplier and retailer
When selling on the basis of consignments, both the supplier and retailer would be able to monitor what levels of inventory are turned over for certain periods of time. They can eventually establish a more fixed bulk order that would suit them both. Ordering the correct quantity, selling the correct quantity and using consignment sales to change course when required will establish a stronger rapport between the supplier and the retailer.
Like any other business ventures, the consignment will have its own benefits and pitfalls. At the onset of the venture, the consigner and the consignee should formalize their relationship with a consignment agreement. This would minimize the risks that may be encountered in business deals and maximize profits for both parties.
A consignment agreement template involves a seller who provides goods/products to another party who would be tasked to sell those products. Payments to the seller would take place only after the other party has sold the products to an end consumer. The seller (the Consignor) places the products in the other party’s hands (the Consignee) but still retains ownership until the products are sold. Usually, sales to customers take place in a shop or a consignment store.
Two parties are usually involved in a Consigner Agreement: the Consignor and the Consignee. The former authorizes the latter to store, sell/or use a certain product. The product can be of any kind: cars, tools, clothing and etc. Such agreement will define the terms and conditions of the consignment deal and will include the addresses of both parties and an adequate description of each product that distinguishes it from other similar products. Here are good important components of a Consignment Agreement template:
The selling rights
Exclusive rights are granted by the Consignor to the Consignee to display and sell the consigned products based on the terms and conditions of the agreement.
The minimum price of the products
The Consignor should specify a minimum price for the consigned product. If Consignee should sell the product at a lower price, the Consignor is entitled to the same payment of the minimum price specified in the agreement. The consignee may sell the product below the minimum price but on the condition that the consignor will be paid the agreed full minimum price.
The fee for consignment
The Consignee is entitled to a percentage fee of the full purchase price of the consigned product. Depending on the time agreed upon, the Consignee shall deliver to the Consignor the sales totals of the product with the Consignee’s fee deducted.
The Consignee will be tasked to maintain insurance coverage enough to compensate the Consignor for the fair value of the consigned products if such were to incur damages caused by fire, theft or otherwise. This is a protection clause for the Consignor giving him assurance for reimbursements in case of damage.
The location of where the items or products are stored
Consigned products should only be stored at an agreed-upon location or address. The Consignee should acknowledge this unless otherwise agreed upon with the Consignor. After all, the Consignor still owns the products and moving them around won’t sit well with him.
The schedule or time frame
The agreement will also specify a time frame for consigned products. If in case, not all the products are sold until a specified date, all those unsold will be returned to the Consignor with all delivery costs to be shouldered by the Consignee.
The representation of the consignor
The Consignor holds full title to the consigned products. When put in writing, the Consignor still has the authorization to sell the consigned products by any necessary parties.
Any costs and expenses
Usually, the Consignee will bear the costs for shipping consigned products. However, it may be agreed upon that the Consignor would do so. All that needs to be done in the agreement is to change the word “Consignee” to “Consignor”.
Modification of the agreement procedures
In case of changing any or all of the terms and conditions of the agreement, it shall be done so in writing and with the concurrence of both parties.
The applicable law
The agreement and the interpretation of its terms and conditions shall be governed and construed in accordance with laws.
Both the Consignor and the Consignee need to be informed of the important components of a good agreement document. It would eventually minimize problems that they may encounter in the course of their business partnership and at the same time maximize financial benefits. A well-prepared agreement will set the terms and conditions of their business and if strictly adhered to, would foster good relationships.
There are good reasons why businesses engage in consignment arrangements. Retails stores are good outlets for new products that need to be tested for their marketplace demand. If consignment conditions are applied, store owners need not invest initial capital in acquiring the consigned product. They will be supplied with the product and need only to remit after the product is sold. New products with great reviews will build confidence in manufacturers who in turn will take the risks to consign the new products to retailers. But a set of terms and conditions between Consignor and Consignee is required. The manufacturer may require the retail stores to invest in promoting the product.
On the onset, the contract needs to be agreed upon by both parties. A well-drafted agreement will prevent/minimize confusion, misunderstandings, and mistakes and will clearly state each party’s expectations and responsibilities. Once the agreement is signed, each party can focus on their own specialty field: the retailer sells and the manufacturer creates. This promotes a successful division of labor with no interference from either side or in the long run, a profitable arrangement. Here are some tips on how to make a good simple consignment agreement:
Consider the tips on how to make a good Consignment Agreement template. A well-drafted agreement will prevent problems that may arise later in the partnership and also delineates the responsibilities of the Consignor and the Consignee.
Let us break down the components of the Consignment Agreement template and simply define them for a clearer understanding of the terms involved, in case you decide to enter into one:
Introduction of parties involved
This will identify the parties and the date of the agreement. The party providing the property is termed the “Consignor”; the one who sells the property is called the “Consignee”. These terms will be used throughout the document.
This would provide the reason why the Consignor and the Consignee are entering into the agreement. A blank space will be provided for the Consignee to describe his general detail purpose.
Property which is consigned
This will describe in detail the property that will be sold by the Consignee on behalf of the Consignor, and how many units of each property will be provided. Details can include factory codes, serial numbers, model and style numbers, etc. Both parties will also concur on the initial prices of all listed items and the date of delivery for those items.
Delivery of the merchandise
This would state that the property is being provided on a consignment basis only and that the Consignor will shoulder the cost of transporting the property and the risks of any loss or damage that should occur during that transport.
Consignment period or the time frame
This will provide the initial length of the consignment period or the time frame. Usually, it is one month and this automatically extends from month to month afterward unless either party decides to terminate it. Depending on both parties, the consignment period can be extended to a maximum of amount of time.
Any and all efforts to sell
Allowing the consigned goods to just sit in the store is not the only responsibility of the Consigner. He should make efforts to promote the consigned product by giving them proper position and attention. The Consignee must also make reasonable efforts to sell the items at the price they agreed on.
Title to Products
In the usual case, the manufacturer’s ownership of the property is transferred to the seller once the property is received. Not so with a Consignment. Here, the Consignor still retains ownership of the consigned goods even if they are in the possession of the Consignee. This paragraph makes it clear that the agreeing parties are involved in a Consignment Agreement.
Payment and commission
The Consignee is entitled to a Consignee’s fee, which is a percentage of the sales price. This is his commission. The percentage will be agreed upon between the two parties. The rules on the terms of payment for products sold (less the Consignee’s fee) will also be included in the agreement. Proceeds may be paid in an agreed number of days: either weekly or monthly or some other arrangement.
Risk of loss or damage
While in the Consignor’s possession, maintaining and protecting the products will be his responsibility. Any damages incurred during that time, the Consignor must reimburse the Consignee for the loss.
Return of products
With a return provision in the agreement, the Consignor can request the return of its products on some reasonable notice. The duration of time will be determined by both parties. At the end of the consignment term, the Consignor can demand as well, the return of its products, the time frame for which can be determined by both parties.
Termination of the agreement
At any given time for any reason, either party can terminate the consignment agreement. When and how the unsold products should be returned to the Consignor is indicated in this section. The Consignee is usually given ample time (as per agreement) to return the property after the agreement is terminated.
This section should aver that neither the Consignor nor the Consignee can transfer their obligations under the agreement without the prior permission of either party.
Lists the addresses to which all official and legal correspondences will be delivered.
For both the Consignor and the Consignee, the document that they are signing IS “the agreement” about the issues involved in their consignment venture. If previous agreements should surface, the signed agreement will prevail.
No implied waiver
This section explains that if either party ignores or allows the other to break an obligation under the agreement, it does not mean that that party waives its future rights to enforce the same (or other) obligations.
This protects the terms and conditions of the agreement as a whole, even when one part of it is invalidated at a future time.
Counterparts or electronic signatures
In a modern day setting, the signing of documents/agreements by the Consignor and the Consignee can take place at different locations or that their signatures can even be transmitted electronically (through computers or fax machines). All these pieces will be considered part of the same agreement.
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