Consignment is a form of commodity-money relations in which the owner of a certain product transfers it to another person for sale. As a rule, such agreements are concluded for a strictly defined period (for example, 1 year). In this case, the following conditions are strictly observed:
- for his services, the seller will receive some remuneration (usually a pre-agreed percentage of the amount received from the sale of goods; in other words, a commission);
- until the moment of sale, the goods will be stored in the seller’s warehouses (although technically it remains the property of the consignor owner);
- If the sale of the goods does not take place within the agreed time frame for reasons beyond the control of the commission agent, the products are returned to the owner (and the shipment is carried out at the expense of the latter).
All of the above provisions are necessarily stipulated at the time of concluding the relevant agreement between the actual owner of the goods (consignor) and its seller (consignee). At the same time, the question of who exactly and under what conditions bears the costs associated with the transportation and sale of specific products is resolved. Typically, these obligations are assigned to the exporter.
The consignment agreement can also be international
Depending on which legal entities (or individuals) such a transaction was concluded between, consignments are:
- internal (if both parties to the contract are residents of the same state);
- international (or international).
The classification of consignments proposed above on a regional basis is generally accepted. However, it is not very popular among specialists. After all, by classifying transactions only on a regional basis, it is impossible to quickly obtain information about their specifics.
Much more important for a specialist is data on the conditions for returning goods that were not sold as part of consignment. This is a very significant aspect. After all, no one can give a 100% guarantee that the products entrusted to the commission agent will find their buyer on time. And it's not always the seller's fault.
The reason for delays in the sale of goods may be its inflated cost or initially low competitiveness. In both cases, the exporter faces a difficult choice. The owner of the product will have to either change (for example, lower its price) or issue a return of the product from the commission agent. However, some other options are possible. Actually, on this basis, consignments are divided into:
- Returnable. In this case, goods not sold on time are returned to the owner's warehouses in full.
- Partially refundable. By concluding such an agreement, the commission agent undertakes to sell a certain volume of goods within a specified time frame. If this does not happen, the seller will be forced to buy the “missing” amount of products from the owner.
- Non-refundable. In such cases, the exporter generally does not consider the possibility. This means that if all the products entrusted to the commission agent are not sold on time, he will be obliged to reimburse the owner for the full cost of the received batch.
Signs of consignment
Consignment agreement: sample
The fact that in this particular case we are talking specifically about consignment, and not about some other type of commodity-money relations, can be judged by some characteristic features of the described agreement. In particular, we are talking about the following points (all the provisions described below are usually mentioned in standard contract regulating the transaction):
- The prices for the goods sold, as well as the time frame within which they must be sold, are agreed upon by the parties to the agreement in advance.
- The products entrusted to the commission agent are not his property. The only exceptions are those cases when, after the expiration of the transaction period, the consignor, at his own expense, buys back the unsold part of the goods from the owner.
- The place where the goods are stored by the commission agent until they are sold (usually a specially equipped warehouse) is also agreed upon in advance.
- The consignor bears all costs associated with the transportation and sale of his goods.
- The exact amount of remuneration due to the commission agent is negotiated before the conclusion.
The last item on the list is worth considering in a little more detail. How is the amount of remuneration for a commission agent determined? This usually happens in one of the following ways:
- In the first case, the commission agent receives a pre-agreed percentage of the value of each transaction he makes.
- In the second, the seller himself works for his own remuneration, selling products at prices higher than those requested by the supplier and taking the resulting financial difference for himself.
- And finally, in the third, the amount of the commission is calculated based on the total cost of the goods transferred for resale.
From all of the above, it becomes clear that from a legal point of view, consignment is almost the same as a contract of agency. The only significant difference between these two types of transactions is the following. Working under a contract of agency, the seller has the right to conduct business only on his own behalf. own name. While the consignor-seller can also act on behalf of the supplier of the goods.
However, there is one more important point that should be mentioned. The fact is that consignment agreements are not regulated in any way by the legislation of the Russian Federation. Only some of their principles fall under the jurisdiction of the Russian Civil Code. That is why such transactions should be made with great caution. Moreover, this warning applies to both the consignor and the consignee.
More information about the consignment agreement
The consignment agreement is drawn up accurately
Technically, the paper signed when concluding a consignment is only one type of commission agreement. This document also addresses all aspects relating to the timing and object of the transaction.
The role of the latter in this particular case is the product being prepared for sale. As for the terms of the transaction, they can be arbitrary. There are no specific time limits for transactions with consignment in the legislation of the Russian Federation.
Here, however, one very important digression should be made. When talking about consignments, it is unacceptable to confuse concepts such as “deal term” and “contract term”. In the first case, we are talking about the time period during which the goods entrusted to the commission agent must be sold. In the second, the terms for which cooperation between the parties to the agreement will extend.
What else, besides temporary factors, is necessarily mentioned in the documents regulating the transaction being described? A typical consignment agreement usually consists of the following points:
- General provisions. This paragraph describes in detail the essence of the transaction. In other words, it is stipulated that we are talking specifically about consignment, that is, the transfer of goods from one person to another for the purpose of subsequent sale of the product.
- Subject of the agreement. This point is reserved for detailed description goods being prepared for sale. The exporter indicates the name, cost, and other important characteristics of his products. Here he gives guarantees that the sale of the described product is completely legal. The latter is possible only if the products are not classified as prohibited, are not a means of providing for third parties, and are not placed under arrest for the debts of the owner.
- Rights and obligations of the parties. We have already partially touched on this aspect in the previous parts of the article and will return to it again below.
- Ownership rights to products sold. This paragraph once again emphasizes that all goods entrusted to the commission agent are, in fact, in the possession of the consignor. In other words, if the products are lost or damaged, the seller will bear responsibility for this. He will also have to compensate the exporter for everything associated with his oversight.
- Product price. The owner of the goods has the right to personally determine its value. The main thing is that the numbers specified in the contract correspond to those that appear on the invoice for the products. In turn, the seller who has received the goods for sale has the right to change its price upward for his own material benefit.
- Consignor's remuneration. This paragraph indicates how the amount that the commission agent will receive for his services will be calculated. We have already discussed above what options for calculating remuneration are possible in practice.
- Payment procedure. This clause of the contract specifies the time frame within which the commission agent is obliged to transfer money to the exporter for the products sold by him.
- Features of the delivery of goods. This clause specifies the volume of products prepared for sale, as well as the location of its further storage and the timing of transportation to the seller’s warehouse.
- sides This part of the document lists the penalties that will be applied to each of the parties to the transaction in the event of failure to fulfill their contractual obligations.
- Validity of the contract. This paragraph specifies the time frame during which a specific document will be considered relevant and valid.
- Conclusion. This item is optional. It is provided in case one of the parties to the transaction wishes to negotiate additional terms of the agreement not mentioned in any of the previous parts of the agreement.
About the rights and obligations of the parties
Responsibility is on every side
The obligations that the consignor and consignee undertake when concluding their transaction may vary significantly, depending on many circumstances. Therefore, in this part of the article we will list only those provisions that are usually indicated in a standard consignment agreement. Thus, by agreeing to the described transaction, the consignor undertakes:
- ensure delivery of goods for their subsequent sale within a time period clearly agreed with the seller;
- provide everything required licenses or certificates for their products;
- provide the seller with full consulting support; supply it with the methodological and advertising materials necessary for the successful sale of goods.
At the same time, the mentioned party to the contract also has some undeniable rights. In particular, we are talking about the possibility of revising the minimum cost of products sold during the transaction. The exporter also reserves the right to change the terms of delivery of the goods if they have been subjected to some modifications or updates. Naturally, the seller must be notified of this in advance.
However, for his part, the commission agent also bears some obligations to the product supplier. They are as follows. The seller must:
- do everything in his power to ensure the smooth delivery of goods to the storage location;
- ensure the safety of the products entrusted to him;
- provide the product owner with monthly reports on sales and available product inventory;
- provide assistance to the consignor in such matters as reconciling financial statements and checking the actual condition of the goods;
- timely transfer the proceeds for the sold funds to the consignor’s account.
Expert lawyer's opinion:
The contract has a fancy name, but there is nothing special about it. A regular supply contract with elements of other contracts. For a businessman, especially one with a good reputation and experience, it is only a tool for doing business. But for a novice businessman, getting such an agreement is an opportunity for a successful start.
Its main difference from other commercial contracts is the deferred payment for the delivered goods. Large retail chains They work under these conditions, they never use advance payment, only after the goods are sold, they pay for it. Some draw up contracts in such a way that if the sale is not complete, then they return the remainder to the manufacturer. They also manage to collect a penalty.
As a rule, an experienced lawyer does not have any problems in drawing up contracts. All difficulties are in the process of negotiations, it is difficult to reach an agreement. Although this problem applies to all commercial contracts.
This video will show you how to receive goods for sale:
In this article we will look at what consignment is and give examples. There are several types of commodity-money relationships between supplier and buyer. One type of relationship is consignment. This is a type of relationship in which the supplier gives the goods for consignment sale.
- The consignor is the party who undertakes to store the goods in his warehouse.
- The consignor is the party that owns the product.
While the goods are in the warehouse, they are the property of the owner of the goods. The goods are the property of the consignor until the sale occurs. After this, mutual settlement occurs, the consignor repays the consignee's obligations for commission costs, pays costs associated with the consumable part of storing the goods, etc. In fact, the consignor is an intermediary between the supplier of the goods and the buyer.
Also, this type of interaction often occurs in the distribution sphere, when the Consignor undertakes to supply the required volume of goods to the warehouse for a certain period, if during this period the goods do not find the final consumer, then the contract for this supply is either terminated and the goods are returned, or the contract extended for the period specified in the contract. All contracts are individual, such contracts are called consignment contracts. Often, such agreements are concluded in the practice of world trade and with the participation of the state. In this case, the state acts as a consignor: customs warehouses, special settling tanks, containers on docks, etc. This type interaction in commodity-money relations, as mentioned earlier, is used in international practice. Based on this, let's give a simple example.
Consignment example
Let's say there is an American company that wants to supply goods to Japan. The product is a new variety of corn, the company does not know exactly what the demand for this variety of corn will be and sends a trial batch of the product. She enters into an agreement with the government. When drawing up a consignment agreement, the storage period for grain in the consignor's warehouses is stipulated for a period of two years, and after this period, the contract will not be renewed. Upon expiration of the storage period, the goods will become the property of the consignor, and before that the goods are the property of the consignor. During the storage and sale of goods, the owner of the goods undertakes to pay 1% of the net profit to the intermediary and pay off the costs associated with storing the goods. The consignor undertakes to provide all appropriate conditions for storing this product.
In simple terms, this example shows that there is a company supplier of a new product, it does not have a sales network for this product, to minimize the risk of losses (the product is new, unknown to anyone and it is difficult to say how it will be sold), the company imports the goods for implementation. The company uses Japanese government warehouses and pays 1% of net profit for this.
The logic here is this. If a company does not have its own subsidiaries in Japan, its own warehouses, or a partner to work with, then the company minimizes risks by entering into a consignment agreement. While the goods are in the consignor's warehouses, the company can engage in marketing and management. For example, calculate the profitability of building your subsidiaries, renting your personal warehouses, finding a distributor for your product, etc. In our example, it is said that this product can lie in the Consignee’s warehouses for two years, during which our company must make a full sale of the product. Otherwise, it will become the property of the consignor. Thus, a corn supplier company gives 1% of net profit in case of sale of goods. This amount is sent to the consignor for storing the goods in warehouses and for expenses associated with storing this product in the consignor's warehouses.
Our example shows the interaction between the company and the state represented by customs. It is worth noting that there are different types of contracts. Agreements between two individuals, between legal entities and individuals. persons, between two legal entities, between subsidiaries, etc. All consignment agreements are individual, the details and specifics of storing the goods are prescribed; the shelf life of the goods may vary from the shelf life of the goods themselves, if the goods are food products or have an expiration date.
Intermediary relations in trade are common practice. They are observed in a wide variety of areas and in the sale of any goods. Therefore, consignment takes far from last place in trade relations.
When selling on consignment, revenue is recognized by the consignor. Revenue is recognized based on the selling price of the goods sold, but only if its value tends to change in certain periods. If the objects of the purchase and sale transaction have the same value, then revenue is recognized on a straight-line basis.
Definition of consignment
Consignment is a commercial relationship in trade in which three parties are involved in the sale of goods: the direct owner or manufacturer of the product, an intermediary and the consumer. By concluding a consignment agreement, the goods are transferred to the intermediary at the warehouse (consignment warehouse) until the sale or expiration of the agreement. In this case, the products continue to remain the property of the manufacturer or the person providing the goods for sale (the owner of the goods) until the purchase and sale transaction. Upon sale, ownership of the product directly passes from the owner to the consumer.
Example in simple words- This thrift stores. When individual gives any product to the store before it is sold. In the case of a consignment agreement, the owner of the goods remains an individual until it is sold from the store. This practice has been known for many years. However, other types of commercial relations.
International trade with consignment
Here the exporter can be a large company, and the consignor can be its subsidiary. That is, the goods are shipped to the commission agent (consignee) for further sale.
An interesting fact is conditional consignment. In exchange practice, shares on conditional consignment are used. This is a quotation of shares on the stock exchange, despite the fact that their physical issue has not been completed. Surprisingly, such shares, without having their actual confirmation, can bring large dividends.
Consignment can be between:
- individual and legal entity;
- one company between subsidiaries;
- two unrelated legal entities.
The versatility of the concept of consignment also dictates the difference in relations between participants in commercial transactions.
Relations between counterparties
Despite the variety of manifestations of one concept, the algorithm of relations is almost the same everywhere. It is as follows:
- Signing the contract. Typically, a contract or agreement specifies that the goods belong to the exporter until full sale. That is, the company may well sell goods on its own behalf, but use for this the actual base of the consignor, that is, an intermediary. Also, the agreement may take the form when the intermediary sells the goods on his own behalf, but at the expense of the exporter. For better understanding You can give an example of the work of some car dealerships. When cars are sold on behalf of the manufacturer, but through a car dealership.
- Dispatch and shipment of goods. Goods supplied under a consignment agreement are specified either in the agreement itself or in the specification attached to it. Consignee (intermediary) in in this case carries full responsibility for the safety of products. This encourages the consignment to be insured in favor of the consignor (exporter). However, there is one “but” in such relationships. As a rule, a standard consignment agreement does not provide for the responsibility of the intermediary for third parties who enter into a transaction with him. In this case, the exporter is exposed to risks. Decide this question will allow prescribing del credere in the contract. This is a guarantee when the consignor is responsible for any actions of third parties, except for the mistakes of the consignor himself (supplier of goods). Delcredere is a real solution in any such relationship, minimizing risks, and therefore allowing them not to be included in the price of the product, which naturally has a positive effect on consumer behavior.
- Concluding an agreement for the sale of goods. The price is regulated by the exporter, that is, the exporter. Typically, the contract specifies minimum prices below which the consignor cannot fall. The contract also stipulates the basic conditions for the delivery of goods. They consist of the terms of transportation and insurance of products all the way to the intermediary's warehouse.
- Payment for goods sold. These relations are regulated by a consignment agreement.
- Return of part of unsold goods. It is not uncommon for the consignor to retain a certain portion of unsold products, which in most cases is returned back to the exporter.
Most often, payments are made as goods are sold.
The consignment and commission agreement has certain restrictions. For example, commission agents can sell goods wholesale and retail, and consignees only wholesale. And these two concepts are very similar because, in fact, consignment is one of the types of commission transactions.
All relations are governed by international law and current legislation.
Until a business idea is born, any activity is empty and insignificant.
A consignment agreement is a document that is concluded for the purchase/sale of foreign trade. It is not directly provided for by the legislation of the Civil Code of the Russian Federation. In legal essence, this agreement is mixed (clause 3. The parties, according to this document, agree on the rules, the elements of which are contained in the mixed agreement. Basically, the consignment agreement determines the relationship between the supplier (seller) and the distributor (buyer). For this reason, the provisions of the Civil Code of the Russian Federation can be applied to it about the supply agreement.
This document also contains elements of a commission agreement. Usually it contains signs if the goods will be stored in a warehouse of third parties. In some cases, the consignee acts as the custodian. An agreement for the consignment of goods may also contain some elements of an agreement for the provision of services - market monitoring, marketing, delivery, transport expedition, and so on.
The term "consignment"
This term has quite a lot of meanings. This word can be used to describe a document, a special procedure for the delivery and payment of goods, an intermediary agreement, an agency contract and much more. Because of the broad interpretation of the term “consignment,” what it actually is can be difficult to define. Sometimes this leads to litigation. This can be explained If consignment is defined, then all interested parties will clearly understand what their obligations are, but if specific terms of cooperation are not specified, then it becomes unclear how the concluded agreement differs, for example, from a commission or delivery.
Consignment as a form of sale of goods
Consignment should be considered as a form in which the owner of the goods transfers it for further sale to the buyer. In this case, the supplier remains the owner of the products delivered to the consignor throughout the entire period that the goods are with the latter. The consignment agreement for the sale of goods must clearly define this point. That is, this definition or any other similar to it should definitely be reflected in the text of the agreement itself.
What is the advantage of a consignment agreement?
An agreement for the sale of goods, in which ownership rights to it remain with the supplier, is called consignment. It is clear that this is not an ordinary delivery. That is, the buyer does not become the owner of the delivered products at the time of their transfer to him. It turns out that the consignor will always be able to withdraw unsold goods from the consignee from the warehouse if the latter turns out to be an insolvent counterparty. This is the advantage of choosing such an agreement.
Features of payment for goods when they are transferred under a consignment agreement
Payment for delivered products is made according to accounts receivable, that is, in installments. In some cases, price collusion, unilateral refusal of fulfilled obligations, punitive agreements and other measures are chosen as a method of securing obligations.
Terms of the agreement
The consignment agreement may contain conditions not only for the sale, storage, but also for the promotion of goods in a certain territory. In this case, sales representatives directly contact points of sale regarding the sale of goods. Sales representatives are employees of either the supplier or the buyer. It is possible to involve intermediaries, with whom a document on financial liability is concluded.
Often, consignment, which is already known in trade practice, includes conditions stipulating the procedure for advertising the goods. This includes the following: carrying out sweepstakes, tastings, test drives and other promotional events with the participation of interested consumers. The agreement also reflects the terms and conditions regarding the time and place of the advertising campaign, monitoring the availability of goods at the point of sale, its display, and so on.
Forms of agreement
There is a simple, partially returnable and irrevocable consignment. What are these forms and how do they affect the organization of product sales? Partially returnable consignment implies the buyer's obligation to buy from the supplier an agreed quantity of unsold goods. The non-returnable form does not give the consignor the right to return unsold goods; they must purchase them in full.
However, the problem of guaranteed sales cannot be solved using the consignment form. It is clear that if the consignor is unable to successfully sell the goods, the partners will analyze the current situation to determine the reason for the failure. As a rule, the main factor of low demand is the uncompetitiveness of products - insufficient technical level of the product, high level prices, much more.