What is a consignment agreement?

When a retailer takes merchandise into their store, they’re taking a risk.

If they can’t find a buyer, they’re losing out.

This might deter them from taking on some specialty items. But if you’re looking to sell some to a store, a consignment agreement might be the solution for you.

What is a consignment agreement?

A consignment agreement is a written agreement between two people that allows one, the “consignor”, to hand over goods to another party, the “consignee”, for the consignee to sell on behalf of the consignor. 

Upon sale, they’ll pay the consignor a percentage of the sale price as a commission.

How does a consignment agreement work?

In the world of wholesale goods, a company will sell a batch of goods to a store with bulk discounts and make their money there and then.

Under a consignment agreement, the consignee doesn’t pay upfront.

Instead, they only pay a percentage of the sale fee when and if they manage to sell it.

Since the consignee hasn’t paid for the goods, they don’t own them. But in a business-to-business context, that can be a perk.

Stocking some products in your warehouse or displaying them on your shelves is a burden: You’ve got limited space and you have to make it work as hard as it can.

Under a consignment agreement, you can return the goods to the consignor if they’re not moving off your shelves.

One important difference between a consignment contract vs. an agreement is that the agreement does not contain terms for legal remedy or compensation.

This means that if the other party doesn’t hold up their end of the deal, you’re only protected by whatever existing laws are applicable.

In this case, the agreement’s only purpose is to set everything down in writing.

What is an example of a consignment?

The wholesale model is common with big retailers selling commodities. 

A store like Walmart buys fresh produce wholesale then has to get it gone before the sell-by date.

They put a lot of effort into predicting how many buyers there are, and optimizing inventory so there’s no waste.

They know there are buyers, and having bought in bulk they have room to cut prices until someone’s willing to take it.

But if an art gallery bought a unique painting or ten prints of a photograph, could they predict when they’re going to sell?

In situations where they’re selling rare goods, the consignee’s job is to use their knowledge and relationships in a niche market to find a buyer.

If the consignor has got in touch about an antique, there might be a handful of collectors and institutions in the world who are willing to pay what it’s worth.

Other situations where consignment is useful are in high-end clothing and furniture resale.

Any time somebody with no “audience” wants to sell something rare, and there’s an intermediary who has customers but needs something to sell them, a consignment agreement lets them work together to make a sale.

How to write a consignment agreement

For a consignment agreement form to work, you have to make sure it covers all the right bases:

  • Introduction: The date of the agreement, and the names and addresses of the consignor and the consignee.
  • Description of items: Models, serial numbers, factory codes, any known flaws with the item, retail prices, etc.
  • Location of items: ‌The consignee agrees to store the items at a specific location, which won’t change unless the consignor agrees in writing.
  • Minimum price: The consignee must sell the goods for no less than the minimum price agreed upon. If they are sold for less, the consignor will receive the same payment as if they had sold for the minimum price.
  • Consignment fee: The commission that the consignee will get for each sale, and the method of payment.
  • Consignment period: ‌ If the goods aren’t sold by a certain date, the consignee must pay to return the goods to the consignor.
  • Applicable law: By clearly setting down which state’s laws apply to this agreement, both parties can get some protection in case something goes wrong.

If you’re trading over any distance, you’re going to need to know how to sign an agreement online.

The easiest way to do that is with an end-to-end solution like PandaDoc, where you can create, send, and sign documents from any device.

Consignment agreement template samples

The quick and easy way to get your agreement moving is to use a consignment agreement template from PandaDoc.

You can customize the template to suit your needs for situations like selling artwork or clothing:

Consignment agreement template for artwork

Terms of the Consignment:

1. The Consignor agrees to consign the following artwork to the Consignee…

2. The Consignee agrees to display and sell the artwork on the following terms…

3. The Consignee shall obtain insurance coverage for the artwork for the duration of the consignment.

4. The Consignor retains all copyrights to the artwork.

5. The Consignee shall return the artwork to the Consignor upon termination of the agreement.

Clothing consignment agreement template

Terms of the Consignment:

1. The Consignor agrees to consign the following clothing items to the Consignee…

2. The Consignee agrees to display and sell the clothing items on the following terms…

3. The Consignee shall inspect and approve the clothing items before accepting them for consignment.

4. The Consignee shall adjust the price of the clothing items as necessary to promote sales.

5. The Consignee shall donate any unsold clothing items to charity upon termination of the agreement.

Simplify consignment with PandaDoc agreement templates

As you’ve seen, a consignment agreement isn’t so complicated.

With one of our agreement templates, you can pick a document that gives you 95% of what you want and fill in the last couple of details you need. 

And with our end-to-end document solution you can send and sign your consignment agreements as soon as they’re received, no matter what device you’re on.

Find out more about how PandaDoc can help with consignment agreements and more business-critical documents, by scheduling a 15-minute demo.