what is consignment? features of consignment

Meaning and Definitions

It is a specialized kind of transactions between a person (called consignor) and another person (called consignee), whereby consignor send goods to consignee to be sold by the later on behalf of former for a mutually agreed commission. The basic Relationships between consignor and consignee is that of a principal and an agent. The idea behind consignment is to tap more customers at far flung places, where it may not be practical for the consignor to sell goods directly to customers. Consignment facilitates expansion of business without opening of branches at different localities. It is regarded as a cost savings devices because opening of branches will involve high initial costs. The primary objective of consignment is to enable the business to become a market leader without the help of a wholesaler and retailer because goods are sent by the manufacturer or wholesaler to an agent.

Features of Consignment

The goods sent on consignment has the following special features :-

1. The Relationships between consignor and consignee is that of principal and agent.
2. The consignor remains the owner of the goods sent on consignment and lying with consignee.
3. The physical possession of goods is transferred from consignor to consignee but the ownership remains with the consignor.
4. The consignee is expected to take reasonable care for safety and security of the goods received  on consignment, without any risk or responsibility.
5. The goods are sent at the risk of the consignor and consignee keeps the goods for sale at the risk of the consignor.
6. All expenses incurred by consignee or losses suffered by consignee are to be reimbursed by consignor.
7. The consignee is not required to pay  for goods received on consignment till they are sold.
8. The consignee will get the commission on the goods sold by him.
9. The goods are to be sold by the consignee for cash unless he is authorised by consignor to sell the goods on credit.
10. The loss on Account of bad debt is to be born by consignor, however, if the consignor gives delcreded commission to consignee, then the loss on account of bad debts is to be born by consignee.