Definition of a Consignment Contract

Many clothing stores sell items on consignment.

A consignment contract is a tool used to engage a seller and an owner of goods in a business deal designed to generate profits for both parties. A few standard contract components ensure fairness and a number of benefits for both the seller and the owner.

Basics

According to E-PersonalFinance, a consignment contract is an agreement between an owner of goods and a seller. The owner gives the seller the goods to be sold. If the items sell, then both parties share in the profits.

Components of Contract

The contract typically specifies what goods are being turned over. It will also state how any profits earned will be split between the owner and the seller and the provisions under which the seller or the owner can end the agreement.

Benefits

Engaging in a consignment contract can benefit both parties. The seller assumes no financial risk relating to inventory because he did not purchase the inventory, but he can make a profit if the goods are sold. An owner of goods is focused on acquiring or creating goods to be sold, instead of actually selling them, but he can still make a profit.

References

• E-PersonalFinance: Consignment Agreement