Consignment is method or arrangement in which the seller does not sell goods directly to the buyer rather the seller gives goods to another party called consignee who in turn sells to the buyer and consignee receives the commission on the sales. In order to understand this concept let’s look at some of the features of consignment –
- The first and foremost feature of a consignment is that there is no direct contact between the buyer and seller of the good and it is the consignee who is a link between buyer and the seller.
- Another feature of consignment is that the ownership of the goods remain with the seller only and not with the consignee and all the risk associated with regards any loss of the goods remain with the seller only so if suppose a shoe manufacturer has given 100 boxes of shoes to consignee then consignee does not have any ownership right on the 100 boxes of shoes. Now suppose if 100 boxes of shoes are damaged due to unforeseen circumstances and without the fault of consignee then the loss will be borne by the shoe seller and not the consignee.
- In the case of consignment, all expenses with respect to sales of goods and also taking goods from consignor place to consignee place is to be paid by the seller of the good and not the consignee.
- In the case of consignment, consignee gets fees or commission on the total value of goods sold by him or her whereas the profit or loss arising on consignment sale belongs to the seller only.
- In the case of consignment, the unsold stock will be the closing stock of the consignor and not the consignee because in the case of consignment only possession of goods is transferred and not the ownership of goods.
- In the case of consignment, consignee can return goods anytime he or she wants to the consignor of goods which is not the case with normal sales transactions where the buyer cannot return goods to the seller that easily.
As one can see from the above that consignment has many special features and any seller looking to do sales on consignment basis should carefully analyze the above characteristics and then take the decision whether to go ahead with consignment sale or not.