Consignment agreement
Encyclopedia
A consignment agreement is an agreement between a consignee and consignor for the storage, transfer, sale or resale and use of the commodity. The consignee may take goods from the consignment stock
for use or resale subject to payment to the consignor agreeably to the terms bargained in the consignment agreement. The unsold goods will normally be returned by the consignee to the consignor.
, distributorship or OEM
).
Goods are stored at the premises of the distributor
, or premises of a third party
, at distributor`s disposal but belongs to the exporter
.
This agreement decreases the exporter`s risk because he remains the owner of the commodities in storage. The distributor does not need to pay until has resold commodities, so he improves his cash flow
.
Both parties must ensure that the consignment agreement is formulated very carefully, so that there remains no room for doubt with regard to third parties, specifically the distributor`s creditors
in case of his bankruptcy.
The distributor and the exporter have incompatible interests. The distributors’ interest will be to raise the size of the stock in consignment because this has no effect on his cash situation. Because of that the parties should agree on reasonable stock rolling adapted to the market demand
, taking into account of how quick the exporter may produce and deliver additional goods to fill up the stock in order to avoid disruption to the stock.
There is requested the fulfillment of conditions by the custom and VAT authorities. Due to the European VAT rules, it is easier to have a consignment stock between EU countries. The distributor is required to keep accurate accounts, but dispensable to have a bonded warehouse
.
Consignment Stock
Consignment stock is stock legally owned by one party, but held by another.- Ownership :Ownership of consignment stock is passed only when the stock is used . Unused stock in a warehouse may be returned to the supplier.- Accounting :...
for use or resale subject to payment to the consignor agreeably to the terms bargained in the consignment agreement. The unsold goods will normally be returned by the consignee to the consignor.
Consignment and distribution agreements
It may be accompanied by a consignment agreement (FranchisingFranchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
, distributorship or OEM
OEM
OEM means the original manufacturer of a component for a product, which may be resold by another company.OEM may also refer to:-Computing:* OEM font, or OEM-US, the original character set of the IBM PC, circa 1981...
).
Goods are stored at the premises of the distributor
Distributor
A distributor is a device in the ignition system of an internal combustion engine that routes high voltage from the ignition coil to the spark plugs in the correct firing order. The first reliable battery operated ignition was developed by Dayton Engineering Laboratories Co. and introduced in the...
, or premises of a third party
Party (law)
A party is a person or group of persons that compose a single entity which can be identified as one for the purposes of the law. Parties include: plaintiff , defendant , petitioner , respondent , cross-complainant A party is a person or group of persons that compose a single entity which can be...
, at distributor`s disposal but belongs to the exporter
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
.
This agreement decreases the exporter`s risk because he remains the owner of the commodities in storage. The distributor does not need to pay until has resold commodities, so he improves his cash flow
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
.
Both parties must ensure that the consignment agreement is formulated very carefully, so that there remains no room for doubt with regard to third parties, specifically the distributor`s creditors
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
in case of his bankruptcy.
The distributor and the exporter have incompatible interests. The distributors’ interest will be to raise the size of the stock in consignment because this has no effect on his cash situation. Because of that the parties should agree on reasonable stock rolling adapted to the market demand
Demand (economics)
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay . The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time....
, taking into account of how quick the exporter may produce and deliver additional goods to fill up the stock in order to avoid disruption to the stock.
There is requested the fulfillment of conditions by the custom and VAT authorities. Due to the European VAT rules, it is easier to have a consignment stock between EU countries. The distributor is required to keep accurate accounts, but dispensable to have a bonded warehouse
Bonded warehouse
A Bonded warehouse is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the latter case a customs bond must be posted with the government...
.