Are you entering into a consignment agreement with another party? Do you hesitate to sign a consignment agreement because you are unfamiliar with the legal terminologies? Are you bothered by the formation of the consignment agreement and the conditions associated with it?
Do not hold back! This is the time to understand the ins and outs of a consignment agreement and how it can be defined for a formal legal agreement between the two parties. This article will help you step up confidently by explaining all essentials of a consignment agreement.
What Is a Consignment Agreement?
The consignment agreement is rigorously used in numerous businesses. A consignment agreement is signed between two parties regarding the accession of one party to the goods of the other.
The consignment agreement basically is a pact between the two parties when one party provides its supply to the other for the purpose of business as agreed upon by mutual consent. It allows the consignee to utilize the given supply by storing, selling, reselling, or marketing it.
The consignor, forms a pact with the consignee and allows the consignee limited authority onto its good. The authority given to the consignee can include multiple features. The consignee has the choice of dealing with the acquired goods in many ways.
Mostly, the act of dealing with the goods is determined by the supplier or the consignor. The consignor determines how the goods will be managed by the consignee. The parties determine a basic agreement of the way to deal with the given supplies or inventory.
It is important to know that consignee is paid commission in percentage for providing services for the handling of goods.
How to Use a Consignment Agreement?
The consignment agreement can be used in various scenarios to meet your business needs. The way to use a consignment agreement can be divided into a number of factors, which may be described as follows:
The consignor takes the consignee into confidence about the goods in question and common ground is reached regarding their usage and management.
Extra details and precautions are highlighted to ensure that the agreement goes through without any misunderstandings and both parties gain the maximum advantage of the agreement.
The consignee then puts forth the commission or compensation he'll receive by the consignor, in case the deal is seen through as stated in the agreement.
A timeline is made, regarding the procurement of the goods from the consignor by the consignee. A time period is determined for the management of the goods, whether they are to be stored, sold, or resold.
The last step is the payments. It is decided if the payments are to be made in advance, what are the measures that need to be taken in order to make the situation viable and what are the contingency plans.
What Are the Benefits of Having a Consignment Agreement?
There are numerous benefits of using a consignment agreement. The businesses avidly use this agreement in order to manage their capital and inventories. Some major advantages of the consignment agreement are as follows:
- This agreement allows the consignor to have some relief regarding the management of his goods or inventory.
- Moreover, it is beneficial for the business in the sense that it reduces the cost of selling the goods in the market on its own.
- The involvement of a specialized Middle-man or agency, that is solely dealing in one's good, always brings a touch of more relief for the consignor.
- The consignment agreement allows the business to get their goods managed easily for a limited amount of investment.
- The consignor, if he makes a good choice in choosing his consignee, can even make a good brand image for his goods. Gaining goodwill of the customers is a big part of any business, and the consignment agreement can be a reliable way to achieve that.
- Consignment agreements also give exposure to your products. The middle man can be directed to spread the product to far off places. This increases the customer base of a product.
What Are Included in a Consignment Agreement?
A consignment agreement, like all the other legal documents, has well defined legal terms and conditions. It is very important for a business, who is looking to form the consignment agreement for his goods, to fully know the complexities of the agreement.
Here are a few key points to know about the consignment agreement:
- The consignor has many legal rights in the consignment agreement. It might be justified to say that the agreement leans more towards the consignors.
- The consignee will bear the expenses of transportation of the goods of the consignor, after the date of application of the agreement.
- The consignee will also ensure the whole package, as received by the consignor. This means that the consignor has the ease of heart, in case of natural calamities and disasters.
- The consignee can not change the agreement once it’s been agreed upon by both the parties, unless allowed by the consignor to be able to do so.
These were a few things that should be kept in mind while forming a consignment agreement between two parties. There is no need to feel overwhelmed by the details. Get your free copy of the updated consignment agreement template on CocoSign!
The consignment agreements are simple in nature, yet hold immense legal power and usefulness. It allows the authority of goods and inventory, to be shifted from onto the supplier to a middle man in a limited and legal manner.
The consignment agreement between a consignee and consignor has many intricacies that are explained in detail in this article. You can get your free consignment agreement sample at CocoSign to get started!
This Consignment Agreement (“Agreement”) made as of ________ (Date), by and between ________________________ ("Consignor") and _______________________ ("Consignee").
Whereas the Consignor wishes to sell certain products ("Products") on consignment and
Consignee wishes to sell the Products on behalf of the Consignor;
Therefore in consideration of the premises, the covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto agree as follows:
1. Sale by Consignment. The Consignee will, from time to time, place orders for the Products from the Consignor. The Consignor may, at its sole discretion, accept such orders and ship such Products on consignment to the Consignee, subject to and in accordance with the terms and conditions of this Agreement. The Consignee shall take delivery and make payment as required hereunder for all Products ordered by it, but nothing in this Agreement shall be deemed to obligate the Consignor to fill any or all of the Consignee's orders for Products.
2. Ownership of Products. Title to, and property and ownership in, all Products shall remain with the Consignor until such time as their removal may be directed in writing by the Consignor or until such time as they may be disposed of by bona fide sale by or to the Consignee or as may otherwise be hereinafter provided.
3. Payment for Products. The Consignor shall invoice the Consignee for all Products shipped to the Consignee pursuant to the terms of this Agreement. The Consignee shall, within thirty (30) days following the sale of any Product, pay to the Consignor the invoiced price of such Product plus applicable taxes. For the purposes of this Agreement, the Consignee shall be deemed to have sold a Product if such Product is (i) sold by the Consignee, (ii) removed, withdrawn, lost or stolen from the Consignee's stock on hand, (iii) damaged or destroyed, or (iv) otherwise not physically present in the Consignee's stock on hand. The Consignee shall not be obligated to pay the Consignor for any Product that is returned to the Consignor undamaged in its original packaging. All overdue amounts shall bear interest at the rate of twelve percent (12%) per year.
4. Books and Records. The Consignee will at all times maintain accurate books and records relating to the possession and sale of the Products and the proceeds thereof, and the Consignor may, upon request, examine the Consignee's records for any purpose consistent with the terms of this Agreement.
5. Risk of Loss. All risk of loss in the Products shall pass to the Consignee upon shipment of the Products to the Consignee. The Consignee shall insure the Products against all risks against which such goods are customarily insured and shall provide evidence of such insurance coverage to the Consignor upon request, from time to time.
6. Location of Products/Right to Inspect.
Products will be kept at the address of the Consignee shown above, and the Consignee will not permit any Products to become kept or stored at any other location without the prior written consent of the Consignor. The Consignee shall, at all reasonable times, and from time to time, allow the Consignor and the Consignor's agents to enter upon any premises upon which the Products are located and examine or inspect the Products wherever located.
7. Removal of Products. The Consignor may, at any time, and for any reason whatsoever, take possession of and remove all or part of the Products with or without notice to the Consignee. The Consignee hereby gives the Consignor the right to enter upon any premises upon which the Products are located in order to enforce the Consignor's rights under this paragraph.
8. Condition of Products. The Consignee will keep the Products free from any lien, security interest or encumbrance adverse to the ownership interest of the Consignor, and shall maintain the Products in good condition and will not waste or destroy any of the Products or use the same in violation of any statute or ordinance.
9. Not Intended as Security. This Agreement and the sale of Products on consignment by the Consignor to the Consignee is not intended to be as security for any obligation of the Consignee to the Consignor.
10. Termination. This Agreement shall commence on the date upon which it is executed by both parties. Either party may terminate this Agreement at any time upon giving thirty (30) days prior written notice to the other; provided however, that such termination shall not affect any payment obligation owing by the Consignee to the Consignor. Upon termination of this Agreement, the Consignee shall pay to the Consignor, in addition to all other amounts owing to the Consignor, the invoiced price of all Products that are not returned to the Consignor undamaged in their original packaging.
Any notice required by this Agreement or given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery or a recognized over night delivery service such as FedEx.
If to the Consignee: _____________________________________________________.
If to the Consignor: ___________________________________________________.
12. No Waiver.
The waiver or failure of either party to exercise in any respect any right provided in this agreement shall not be deemed a waiver of any other right or remedy to which the party may be entitled.
13. Entirety of Agreement.
The terms and conditions set forth herein constitute the entire agreement between the parties and supersede any communications or previous agreements with respect to the subject matter of this Agreement. There are no written or oral understandings directly or indirectly related to this Agreement that are not se