Consignment (lat. consignatio, eng. consignment - document, written evidence) - a form of commission sale of goods in which its owner (exporter) transfers the goods to the consignee to the warehouse. In this case, the goods remain the property of the exporter until its sale. As a rule, if the goods are not sold for a long time (for example, more than a year), then they are returned back to the exporter at his expense.
Consignment Agreement (English consignment aggregation) is widely distributed in the field of customs due to the use of customs warehouses and was formed due to international practice of interaction between sellers and buyers. It is used when selling new goods for which demand is unknown.
This is a form of sale in which the owner (seller, exporter) transfers the goods for sale to the warehouse to the buyer (consignee, distributor) while remaining their owner during the entire time spent by the consignee. For storage and sale, the consignee receives a reward.
“Consignment” has many meanings:
- document, mediation agreement,
- special order of delivery and payment of goods,
- agent contract, etc.
Consignment warehouses in the USA are called “bonded warehouses” (English bonded warehouse), in Russia these are customs warehouses.
According to the principle of freedom of contract, a consignment agreement A contract can be of any name (for example, a supply contract on a consignment basis).
Parties [edit |
If the entrepreneur is in the market for a short time, then consignment will help him start production activities faster and more successfully. There are a number of positive aspects here:
- There is no need to invest your own money in order to buy the necessary goods.
- Risk minimization is characteristic to fill storage facilities.
- The owner of the product is not responsible for the sale of the product.
- If the period for the sale of goods has passed, then it must be returned to the exporter.
- The margin on the goods is set directly by its owner.
So it is worth noting that the terms of the consignment agreement are beneficial for the exporter:
- the owner of the goods is the owner until the goods are sold to the buyer,
- unsold goods are returned to the owner after a certain period of time in the condition in which they arrived at the consignee. He is obliged to monitor his integrity, appearance, quality, etc.,
- the exporter usually does not spend its own funds on logistics costs. Consignment means a minimum of cash costs for the owner of the product,
- upon receipt of the product back, the exporter has the right to sell it himself.
The consignment agreement implies the conclusion of a transaction by the owner of the goods with the seller, who will be engaged in the sale of his goods on certain conditions. The owner of the goods transfers his product to the warehouse for a specific or indefinite period. This condition of cooperation is on an individual basis.
Today there are several types of consignment:
What is convenient consignment
Consignment is a convenient start for a novice entrepreneur:
- There is no need to invest in the purchase of goods.
- Warehouse packing risks are minimized.
- The consignee is not responsible for the sale of goods.
- After the expiration of the consignment period, the goods are returned to the owner.
- Markup on the goods is determined by the consignee.
The terms of the consignment agreement are no less interesting for the owner of the goods:
- The owner remains the owner of the goods until the time of sale and can control it.
- The unrealized product is returned to the owner in an undamaged condition, i.e., the consignee is responsible for the safety, presentation, commercial quality for the period of the contract.
- The owner in standard cases does not bear material costs for logistics, consignment is the minimum financial cost for the owner of the goods.
- Upon receiving the goods back, the owner of the goods may sell them at his discretion.
Types of Consignment
In a consignment agreement, a transaction is concluded between the owner of the goods (exporter) and the seller (exporter). The owner transfers the goods to the warehouse to the seller on certain conditions specified in the contract. The term of the contract determines the period of interaction between the parties and can be unlimited, the duration of the consignment conditions is negotiated by the parties for each type of product / product / service. There are several types of consignment, the most common of them:
- Return Policy Handing over the goods for consignment, they stipulate a certain time period through which the goods must either be sold or transferred back to the owner. This is a fully refundable consignment.
- Partial return consignment. The conditions are stipulated under which the seller undertakes to redeem part of the goods after the expiration of the consignment period (it does not matter whether it is sold or not).
- Complete irrevocable consignment. After the expiration of the consignment conditions, the goods cannot be returned to the owner of the goods, but must be fully paid by the consignee.
The consignment agreement may be regional or international. International treaties additionally prescribe the terms of currency transactions.
The problem of any contract relating to the sale of goods is the risk that it will remain unsold, since the owner of the goods has financial interests in the transaction and the seller too. Often this is the background of the overestimated cost of the product, and the product cannot be sold. Therefore, participants in the transaction must find compromise options for cooperation, in which the owner of the goods reduces the cost, and the seller appetites for commission interest. Another compromise option is the timing of the sale of goods, especially if the product is new to the market and there is no advertising support.
Here, at the end of the contract, the product is not returned to the owner, but must be fully redeemed by the seller.
The consignment arrangement may be regional or international. When drawing up international treaties, it is necessary to additionally prescribe the conditions with the possible use of operations with foreign currencies.
When consignment is needed
What gives an ordinary person who is not involved in the production process consignment? Example: you have accumulated clothes, household items, appliances that are a pity to throw away, but you can’t sell them yourself. It can be handed over to the thrift store, where the consignment agreement is concluded, according to which the items you handed over will be sold within a certain period. At the end of the consignment period, money will be returned to you for the sold and unrealized things, while the cooperation agreement can be extended and the consignment agreement completed.
The second example: you like to do something with your hands and made some beautiful little things. You realize them yourself, but it distracts you from the creative process, or there are already many works that have accumulated, and they need life in other hands. This is also the case in which it is possible to conclude consignment deals with specialized stores.
The problematic side in concluding any arrangement that affects the sale of goods is the possibility of risk situations caused by the lack of sale of the goods, because the owner of the goods and his seller are equally interested in selling them. Both parties want to get the most benefit from the sale of the product. In most cases, this factor is fundamental to raising the price of a product, and because of this, the product can’t find its buyer in any way.
Based on the foregoing, all parties to the contract should seek a partner compromise in organizing the pricing policy for the product: the owner can slightly reduce the price of the product, and the seller reduces requests for interest on the product. You can also increase or decrease the time period for the sale of goods, depending on how popular, advertised or in demand.
For what purposes is consignment needed for an ordinary person who does not have his own business?
I must say that for individuals this process is in demand. For example, a person has clothes in good condition that he does not wear or that has become small for him, or there is equipment that he does not use, but he can’t sell it on his own. All these things can be brought to the thrift store, conclude a consignment agreement for a certain period, and wait for money from the sale.
Moreover, a person does not lose anything: at the expiration of the period, if things were not sold, then they are returned to the owner intact. True, the consignment agreement can be extended for another period, but for this you need to draw up a new agreement and re-register all the conditions.
There is also a second option for applying a consignment agreement for individuals: if a person knows how to do something beautifully and efficiently with his own hands, he can bring them to a specialized store and conclude an agreement. There is a big plus: you don’t need to look for buyers on your own, distracting from creativity.
What is important in the contract
Consignment is a contract in which it is important to prescribe all the conditions under which the parties regulate legal and financial relationships. This is a map that helps the parties find a compromise before the start of the common work and the opportunity to resolve disputes in the legal field.
The consignment agreement has certain characteristics:
- the exporter instructs the exporter to sell his goods on certain conditions,
- Consignment dates are determined
- the owner of the goods remains the exporter until the consignor transfers the goods to the final buyer and the exporter receives the full value of the goods specified in the contract,
- the amount of the commission to the consignee is specified in the contract under the specified conditions (% of the total amount of goods sold or partial% of sales, etc.),
- goods that are not sold on time shall be returned to the exporter at the expense of the exporter, unless other conditions are specified,
- the parties are entitled to add additional conditions to the existing contract until it is signed by both parties.
When concluding consignment agreements, it is worth considering that the consignment agreement is not regulated by the legislation of the Russian Federation.
Consignment is a specific contract where it is necessary to prescribe the necessary conditions that govern legal and financial relations for partners. This is a document that helps participants find a compromise to start a joint activity, as well as ways to resolve disputes in the process.
The consignment agreement has a number of distinctive features:
- the owner of the goods transfers the right to sell to the seller on pre-agreed conditions,
- set the time period for consignment,
- the exporter is the owner of the product until the exporter sells to the buyer at the price established in the contract,
- the amount of the commission to the seller is prescribed in the contract under certain conditions (usually this is a percentage of the total amount of goods sold or an incomplete percentage of the sale),
- unsold goods must be returned to their owner at the seller’s expense, provided that this is agreed upon,
- The parties to the agreement may add additional conditions to the existing agreement until it is signed.
In the process of concluding contracts of this type, you need to know that they are not controlled by the legislation of the Russian Federation, therefore it is regulated by the provisions of the contract for the supply of goods. In addition, consignment is equivalent to an agreement on a foreign trade commission under the import-export system, which is concluded for the implementation of this agreement.
There are cases when it is necessary to register a responsible person in the contract who will be responsible for the safety of the goods being transferred. Sometimes it is the seller himself, and in the contract about this put a certain mark. The consignment agreement may include certain parts aimed at the provision of services (market research and analysis, marketing situation, delivery conditions, transport conditions, etc.).
Such an agreement is often used in the field of customs through the use of customs warehouses, which were formed through international practice of the relationship between seller and customers. It is also used to sell items that are of unknown demand.
Consignment is an extensive process of cooperation between the parties involved, where everyone has the opportunity to meet their own needs. Usually, the main reason for a small demand for a product is its lack of competitiveness, imperfection of performance, inadequate quality, high cost, etc.
In general terms, Consignment can be described as one of the types of commission contracts, according to which the Commissioner sells it from the warehouse on behalf of the owner of the goods. Many entrepreneurs actively use Consignment in foreign trade, and this despite the fact that the concept of such an agreement is completely absent in the civil legislation of the Russian Federation.
Every entrepreneur who has ever acted as an exporter and exporter knows perfectly well that the danger of fraud lies in wait for this type of activity hourly. If you are going to or are already using consignment to conduct your business, no matter what role you play, it will not be superfluous to familiarize yourself with this material.
So, most often Consignment is used to sell those goods for which demand is difficult to predict (new goods, goods unusual for a new market), as well as in export-import deliveries of goods. You can also draw some parallel between Consignment and lending, when a retailer receives goods and materials (inventory) without any obligations and advance payments. And lending, as you know, is inextricably linked with such a concept as risk.
One of the cases of consignment fraud is as follows. Suppose your company, the owner of the goods (Exporter), on certain conditions, has entered into an agreement with the Consignor (reseller) on the sale of goods from the warehouse of the Consignee abroad. A fraudulent consignee receives a large consignment under the conditions of the aforementioned agreement and disappears with it.
Another incident occurred with a food wholesaler. The company entered into a Consignment agreement with a little-known private enterprise. In order to ensure security, the wholesale company - the Exporter, on a prepaid basis, for a long time provided small consignments for sale to the Consigner.
The consignee (distributor of goods) worked quickly and reliably: the goods were sold as soon as possible, payment for the goods according to the contract was carried out immediately upon its sale. The Exporter’s confidence in the Consignor has gradually increased.
The Consignor’s secret was that he set the retail price of the product so low as to ensure its quick sale with minimal profit. And all because the Consignor had the goal of proving to the wholesale enterprise - the Exporter the efficiency of his work and the ability to "wrap" large quantities of goods in a short time.
After a dozen successful operations carried out by the Consignee, the Consignant - a wholesale supplier, without prepayment, began to give small consignments of goods. The consignee, it should be noted, had enormous patience: he was still selling the received goods at the lowest prices, ensuring a quick cash flow.
In the end, the Consignant, a wholesale company, was inspired by the trust of a smart and quick Consignor, and decided to work with the last big one: the wholesale company gave a large consignment consisting of several trucks for consignment. Is it necessary to say that the Exporter did not see the clever agent more? There is also a completely different version of the fraudulent operation with consignment goods from the previous one, in which the Exporter himself acts as a fraudster.
A fraudulent enterprise engaged in the wholesale trade of goods enters into an agreement to consign a consignment of slightly liquid goods for sale by another enterprise or private entrepreneur. The consignment agreement stipulates specific periods for which the Exporter transfers the goods for sale to the Consignor. Соглашение также содержит пункт приблизительно следующего содержания: «В случае несвоевременного возврата партии товара или его стоимости по истечению срока консигнации, или несвоевременный возврат стоимости поврежденного или утраченного товара в пятидневный срок Консигнатор (тот, кто получает товар на реализацию) обязан дополнительно заплатить комиссию в размере 10% от стоимости невозвращенного в срок товара за каждый просроченный день».
Upon signing such a consignment agreement and transferring a consignment to consignment, the Exporter disappears from view. And in the event that the consignor has not sold a consignment of goods, then by the time the expiration of the agreement of the Consignor-fraudster is completely impossible to find. Obviously, he does appear, however, after several months after the expiration of the consignment period, and demands to return the goods and pay a commission in accordance with the above clause of the agreement. You can only imagine the size of the commission, which in the end can exceed ten times the value of the goods.
Therefore, to all Consignors and Exporters, HOBIZ.RU wishes not to fall for the scammers. And in the event that the Consignor has signed or is only going to sign a consignment agreement on such conditions, we advise to provide all possible ways of selling the goods within the terms fixed by the agreement. In the extreme case, if the implementation of the goods fails, it is necessary to give up all efforts for its timely return. And if the last action is impossible, in order to avoid the appearance of a penalty upon the expiration of the contract, find the opportunity to pay the Exporter for the delivered goods, and slowly engage in its implementation.
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