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Consignment Agreement

This Agreement is entered by and between Jonas Adam, individually or collectively as the "Signee" and Jane Smith, as the "Signer", together referred to as the "Parties".
The Contract is dated [the date both parties sign].

1. Agreement terms

The Parties agree that the following agreement is dependent on the terms presented as follow:

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Consignment Agreement

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What is a Consignment Agreement?

A Consignment Agreement is a legal contract that is made between two parties. It covers the sale of products or goods when the owner wants to designate a legally appointed salesperson that can sell the product or good without losing their right to ownership. The original owner, or Consignor, will make this agreement with the Consignee, or seller. This is similar to a vendor agreement, except there's the extra step of the Consignor keeping ownership of the goods until they're sold. The agreement entrusts the goods and products to the Consignee, who will handle the sale of these products to the Consignor’s customers. Payment for the sale of the goods will be remitted to the Consignor after the goods are purchased. 

This agreement is different than the Distribution Agreement because with a Distribution Agreement the Consignee does not retain their ownership over the goods. They are a middleman who temporarily holds the goods until they are released through purchases. The Consignee never has ownership of the goods, despite them being in his possession. The Consignor can always request that the goods be returned to them after a designated span of time. 

Why should I use a sample Consignment Agreement template?

Consignment Agreements are incredibly useful, but you need to make sure that you enact them properly. That’s why we offer a sample Consignment Agreement template. For Consignors, the Consignment Agreement is necessary to ensure that they retain ownership of their goods and services. It protects them should anything go wrong, or should the Consignor attempt to steal the goods without remitting the profits from sales. 

Consignment Agreements are very convenient because they allow goods to be sold without having to run on a per invoice basis. This is much more convenient, but without the Consignment Agreement, the expensive goods may not be returned to them. The Consignee may not be able to pay for the goods until they are sold to the customer because of the high ticket value of the item, so the Consignment Agreement protects the Consignor should the Consignee fail to pay them upon sale.

Essentially, a Consignment Agreement is a necessary legal document to protect your interests if you have a business that requires you to have someone sell products on your behalf instead of devoting the time and resources into doing so yourself. If you want to make it a formal business document, then both parties will need to outline specific terms and conditions. 

It is important to set a minimum price in the Consignment Agreement, so the Consignee knows how to price their sales and promotions! (Source)

What are the benefits of a Consignment Agreement? 

There is usually a very good relationship between the Consignor and Consignee. After all, the Consignor is trusting the Consignee with their products and trusting that they will send the money upon sale. This allows for a variety of benefits. 

For a supplier, it is advantageous to be able to use the retail space of the seller instead of having to pay to store their products until they are sold. The retail option also attracts potential buyers that may not come to the Consignor’s space. Considering where the stocks are displayed, how to allow customers to easily find them, are separate the different types of goods are important. You also need to coordinate promotions to increase sales volume. 

This also allows for communication and a solid relationship between a supplier and a retailer. Both parties will be able to keep track of the inventory and turnover in any given time period. This allows them to establish bulk orders that are amenable to both parties. When you are more accurately able to order and sell the right quantity, you get a better relationship going between both parties. 

For retailers and Consignees, one major perk is saving money on the cost of keeping inventory stocked. Because the Consignee isn’t providing the capital for the sale of the goods, they don’t have to pay the supplier until the goods are sold. This improves their cash flow, leaving less money tied up in inventory and more money for marketing, which is beneficial to both parties. 

This also allows the product to get to the customers more quickly. Without spending capital, the retailer is more likely to stock your products. Your goods are more likely to be put on trade floors and in storefronts than Distribution Agreements, where the Consignor has to come up with the money for the product up front. This allows the goods to be displayed where customers can see and touch products before buying them, 

Customers are more likely to purchase goods when they can pick them up and inspect them first. (Source)

It also lets you restock as items sell rather than playing guessing games about the products. This prevents any lag where your items are out of stock to potential buyers. It also prevents storerooms from overflowing with goods that aren’t moving. 

How do I account for products in a Consignment Agreement?

Our sample Consignment Agreement template will help you determine the best way to account for product sales, but here are some things to consider.  Keep these in mind as you consider your terms.

First, you need to know how insurance is handled. Will the goods be insured by the Consignor or the Consignee? If the goods are currently covered with the Consignor’s policy, will that coverage still be applicable if the goods are Consigned? If this would invalidate the insurance policy, then you need to account for who will handle coverage.

When you are dealing with accounting, you should make sure you are on the same page with the accounting process. There should be a reliable system in place that can track incoming and outgoing stock of goods. This report will regularly inform the supplier and the retailer about stock volumes and help them track when payments need to be remitted to the Consignor. 

What should a sample Consignment Agreement template contain?

The sample Consignment Agreement template should make it easy for you. The form will have the important pieces of information for your sale. 

This includes the names of the Consignor and Consignee. This will also require you to define the terms of payment; whether the Consignee will remit payment on a per item basis or at designated periods of time, or when a certain amount of sales have been reached.

You need to dictate the rights to sell to the Consignee and any of your terms and conditions. Be specific. You also need to set a minimum price for your products, so that if a Consignee decides to offer a sale or promotion they know your bottom price that you’re willing to accept for the items. This way, if the Consignee decides to sell below that minimum, they know they will be responsible for paying the difference out of pocket. 

You also need to set a consignment fee. This is a percentage of the full purchase price that the Consignee will receive for selling your goods. Insurance needs to be designated as well. You need to outline the minimum expected insurance coverage for the goods and dictate which party will need to maintain it. 

You can also designate any authorized store locations that he goods can be stored. This is where inventory will be held, so it can be accessed by both parties. Dictate how long the Consignment Agreement is for so that products are remanded to the Consignor after the Agreement expires. Mention any representation and applicable costs and laws.