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How to Create or Understand a Consignment Agreement

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A consignment agreement is a selling arrangement between a retail store and a provider or manufacturer of a product. For example, artists commonly provide their work to galleries and art shops on consignment. The arrangement is strongly in favor of the retail store, as the shop owner does not have to pay for the product from the provider in advance. When you create and enter into this type of agreement as either party make sure that you understand exactly what it entails.

List the full name and company name of both the consignee (person providing the goods) and the retail shop that will sell the goods to the consumer. It is important to list both the business name and owner’s name in case the shop or provider operates as a sole proprietorship.

Describe the consignment arrangement in explicit terms in your written agreement. The consignee will provide goods to the shop and agrees to be paid when the goods are sold.

Include the amount of the commission split, for example, 60 percent to the consignee and 40 percent to the shop. So if the product sells for $10, the seller receives $6 and the shop keeps $4. Define how often the retail shop must pay the provider, such as once per month on a certain day, or within a certain number of days after each sale.

List the specific goods the provider is leaving with the store including their name, description, SKU number (if applicable) and retail price.

Define the timeline for when the provider must retrieve unsold goods or renew the consignment agreement for those goods at the shop. Describe requirements as to the condition of the goods when they’re retrieved. In most consignment arrangements, the retail shop must preserve the items in an acceptable condition or pay for them. The shop owner should also have sufficient business insurance to protect the items in the store.

Include details about the seller’s exclusive arrangement with the retail shop if applicable. If you’re the seller then if you enter into an exclusive consignment agreement you can only sell your items to that specific shop.

Provide terms and conditions regarding the termination of the consignment agreement. The shop owner should provide proper notice to the consignee if the inventory is no longer being offered for sale at the shop. On the other hand, the consignee should give the shop owner proper notice that he’s pulling his items so that the shop owner can inform customers.

Tip

Check the reputation of the store on review websites and your local Better Business Bureau before entering into the consignment agreement. Start off with a small amount on consignment until you're sure of timely payment for sold goods.

About the Author

Louise Balle has been writing Web articles since 2004, covering everything from business promotion to topics on beauty. Her work can be found on various websites. She has a small-business background and experience as a layout and graphics designer for Web and book projects.

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