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Selling on consignment means that a retailer attempts to sell your product in their store or showroom without becoming the owner themselves — they sell on your behalf and deduct a fee from the sales price. It is an attractive arrangement for luxury and second-hand goods, but without a proper consignment contract, you run a risk. Below, you can read how consignment works, what the advantages and disadvantages are, and what the contract should contain.
What is a consignment agreement?
As the owner of a business, you enter into a consignment agreement with a party attempting to sell the product for you, typically in their showroom or store. Unlike in the traditional chain of sales, that merchant never becomes the owner of the product. They merely enter into a sales agreement and deduct a fee from the sales price—a fixed amount, a percentage, or a combination. As soon as the merchant sells on your behalf, ownership passes directly from you to the buyer.
When do you use consignment sales?
Consignment is often used for:
- luxury goods such as luxury cars, jewelry, art and antiques;
- riskier products whose selling price is difficult to predict, such as second-hand furniture, second-hand cars, and vintage clothing.
Advantages and disadvantages of consignment
Advantages:
- the owner retains the right of ownership if the product is not sold and thus runs little risk;
- the owner benefits from the merchant's sales channels;
- The trader does not have to advance any funds, which is good for his cash flow, and loses no money if sales fail to materialize.
Disadvantages:
- if the product is not sold, the owner receives no money and gets the product back, while the trader earns nothing despite his efforts;
- The owner remains the legal seller and is therefore liable if the product does not meet the requirements — the trader is merely an intermediary.
What is stated in a consignment contract?
Anyone engaged in consignment sales cannot do without a consignment contract. Important agreements are:
- The selling price (possibly with a margin). For second-hand goods, it is sometimes agreed that the price will be reduced after a certain period.
- The remuneration for the merchant: a percentage of the selling price, a fixed amount, or a combination.
- The term and what happens when it has expired — the owner often collects the product at their own expense and risk.
- Early return: the owner can sometimes get the product back before the end of the term, often against a termination fee.
- Maintenance, security, and insurance of the product during consignment.
Please note regarding international consignment
Consignment with foreign companies is often complex, partly due to specific rules regarding import duties and VAT. TODO_VERIFY: the tax and customs rules for cross-border consignment are specialized and subject to change — have this checked on a case-by-case basis. Legal and tax advice is particularly recommended in this area.
Frequently Asked Questions
Does the trader become the owner of the product?
No. With consignment, you remain the owner until the sale to the end customer. The dealer sells on your behalf and never becomes the owner themselves.
Who is liable if the product is defective?
In principle, the owner, because they are the legal seller. The trader acts as an intermediary.
What happens if the product is not sold?
The owner gets the product back — usually at their own expense and risk — and the merchant receives no compensation. Clearly document the handling after the term has expired.
Can I retrieve my product in the meantime?
If the contract allows it, yes, often subject to a termination fee. Include a clear provision regarding this.
Have a consignment agreement drawn up?
A consignment agreement is tailor-made: the right agreements regarding price, remuneration, term, liability, and insurance prevent disputes. Good advice is essential, especially for international consignment.
Our contract law experts draft your custom consignment agreement . Schedule a no-obligation intake consultation .
