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Does your business sell goods on consignment from a third-party supplier, or do you supply goods to another business for sale? If so, you should have a consignment agreement to make the terms of the relationship clear on both sides.
What is a consignment agreement?
A consignment stock agreement is one in which a business (consignor) supplies products to another business (consignee) for the purpose of selling those products.
Under the terms of an agreement, the consignor typically retains ownership of the products until they are sold and can request their return at any time in their original condition. The consignee acts as an agent representing the consignor and receives commission on the sales.
Download this consignment agreement template at Lawpath
When should I use a consignment agreement?
You should use a formal agreement when entering a new relationship with another business as either a consignor or consignee. A written consignment stock agreement ensures that both parties are clear about the terms of the relationship and avoids problems down the line.
You can use a consignment agreement when it is preferable to selling the products to the consignee outright, or if the products carry a high value and the consignee needs to sell them to generate the funds to pay.
The consignor should register its ownership of the products with the Australian government's Personal Property Securities Register (PPSR), to avoid the risk of the products not being returned if the consignee were to encounter problems such as defaulting on obligations to its creditors.
Consignment agreement vs "sale or return" agreement
Under a "sale or return" agreement the supplier passes on ownership of the products to the seller but has the right to return unsold products – unlike a consignment agreement where the consignor retains ownership.
A consignment agreement is common when a business launches new products or enters a new market and uses a distributor to act on its behalf.
What is included in a consignment agreement?
An agreement clearly outlines the rights and responsibilities of the consignor and consignee. It includes the details of the parties and products and sets out specific terms of the agreement:
- Contact details of the consignor and consignee
- Delivery address for consignment goods
- Product pricing and consignment fees
- Duration of the agreement
- Ownership of products
- Transport and storage of products
- Return of unsold products
- Responsibility for liability and risk
- How payment will be made and protected
- Procedures for raising and resolving disputes
- Process for terminating the agreement
How effective is a consignment agreement?
Having a written agreement is effective in preventing disputes, as the terms of the sale, transfer and ownership of the products are clearly laid out. If there is a dispute, the agreement includes a resolution procedure.
Do I need a lawyer for consignment agreement?
There are templates and examples for writing a consignment stock agreement without a lawyer, although consulting a lawyer will ensure that the agreement includes the wording and details needed to protect the business relationship and your company. If the relationship is complex, a lawyer will be able to draft detailed clauses that anticipate any important issues that could arise.
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How do I write a consignment agreement?
The agreement should be written in clear language that makes it easy for both parties to understand their responsibilities. You should include as much detail as possible and organise the document into sections that cover all the terms it needs to address, as shown above. You can find a free consignment agreement template below to help you with the structure and wording.
Where to get free legal documents and templates like a consignment agreement.
- Lawpath. Lawpath is an online legal resource for small businesses and entrepreneurs. You can see free samples on the site, but you need to sign up to download and customise the templates, which include a consignment agreement.
- LegalVision. LegalVision provide users unlimited use of legal document templates, including a consignment agreement, and access to a marketplace of lawyers for a monthly membership fee of $199.
- Net Lawman. Net Lawman offers legal documents, guides and templates and provides access to lawyers. It offers a consignment agreement template for distributors for $139, or you can have the legal team review the document for $688.
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