Consignment
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Consignment involves sending goods from a manufacturer or producer (consignor) to an agent (consignee) in another location to sell the goods. The consignee acts on behalf of the consignor and does not take ownership of the goods. Any losses are borne by the consignor, while the consignee earns a commission from successful sales and deducts expenses before remitting the balance to the consignor. The relationship between the consignor and consignee is one of principal and agent.
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Consignment
- 1. Consignment
- 2. ConsignmentConsignment Consignment can be defined as the act of sending a quantity of goods by manufacturers and producers of one country or place to their agents in another country or place at the risk of the principal for the purpose of sale. Good so sent are called consignment. The sender of the goods is called consignor. Generally the manufacturer and procedures are called consignors. The person to whom goods are sent for the purpose of sale is known as the consignee.
- 3. Cont..Cont.. Good sent on consignment do not become property of the consignee. He has not bought them. The ownership remains with the sender or the consignor. If the goods are destroyed, the receiver(consignee) is not at all responsible. The loss will fall on the consignor. The consignee tries to sell the goods according to the instruction of the consignor.
- 4. Cont..Cont.. When the goods have been sold, consignee will deduct his expenses, commission etc, from the sale proceeds and the balance is remitted to the consignor. The relationship between consignor and consignee is that of principal and agent. Consignor is principal and consignee is agent. The consignee act entirely on behalf of consignor.
- 5. Distinction between consignmentDistinction between consignment and saleand sale 1. In case of sale, the legal ownership of goods sold is transferred to the purchaser of goods, whereas in case of a consignment of goods, the legal ownership of the goods is not transferred to the consignee but ownership of the goods remains with the consignor till the goods consigned are sold by the consignee.
- 6. Cont..Cont.. 2. In case of sale of goods, the relationship between the seller and purchaser of the goods is that of creditor and debtor, whereas in case of consignment the relationship between the consignor and consignee is that of principal and agent. 3. In consignment, expenses incurred by the consignee in connection with the goods consigned to him are usually borne by the consignor., whereas in case of a sale, expenses incurred after sale of goods are borne by the purchaser.
- 7. Cont..Cont.. 4. In case of consignment , risk attached to the goods consigned lies with the consignor till the goods consigned are sold by the consignee. But in case of a sale, risk attached to the goods sold is transferred to the purchaser of the goods. 5. In case of consignment, return of goods is possible if the goods are not sold by the consignee. But in case of sale, return of goods is not possible as goods once sold are not returnable.
- 8. Cont..Cont.. 6. In case of consignment, account sale is required to be submitted periodically by the consignee to the consignor. But in case of sale no account sale is required to be submitted by the purchaser to the seller.
- 9. Important TermsImportant Terms 1. Commission: Commission is the remuneration of the consignee for selling the goods of the consignor. This commission is generally calculated at a rate percentage on the gross proceeds of sale. 2. Del credere commission: It is an extra commission paid to consignee for his guarantee of realization of debts in full, in connection with the credit sale of goods on consignment.
- 10. Cont..Cont.. Good may be sold by consignee either for cash or on credit, When the goods are sold on credit the consignee may guarantee that consignor will be paid fully and consignor will be liable to indemnify the consignor for all the bad debts. In such case the consignor pays the consignee an extra commission for his guarantee, this extra commission is called Del Credere commission.
- 11. Cont..Cont.. 3. Advance against consignment Usually consignee is asked to accept a bill of exchange to cover the part of the value of the goods consigned. This is a guarantee that when the sales are effected , he will make the payment. Instead of bill of exchange, the agent may remit a sum of money to the principal as an advance. This advance or the amount of the bill of exchange is adjusted when the goods are sold.
- 12. Cont..Cont.. 4. Pro forma Invoice When the consignor sends the goods to consignee, he forward a statement showing the particulars such as quantity, quality, price of goods etc. This statement is called pro forma invoice. 5. Account sale: An account sale is a statement prepared and sent by consignee to consignor at periodical intervals, specifying the goods sold, price realized, expenses incurred, commission payable and the net amount due from the consignor.