You’ve done your research, contacted some potential consignees and pitched your business successfully. Congratulations! Now comes the potentially daunting task of dealing with the legalities.
You’ll want to ensure that your rights and responsibilities are fully discussed, agreed upon and formally covered in a written document. If a disagreement occurs between you and your consignee, the last thing you want to be doing is relying on verbal promises to sort things out.
It’s common for the store to have a consignment agreement template already if they have had previous consignment arrangements. If so, ensure that you take the time to read and understand all points contained within the document. It’s completely fine to ask for amendments and/or clarifications if you need.
Here are some common areas to look at covering in your agreement.
Commission
This is the big part of the agreement: what percentage will you pay the consignee when they sell your products? If the store has other consignment agreements in place, they will most likely have a suggested rate however don’t be afraid to haggle on this!
Your agreement should clearly state exactly what percentage each party will receive when an item is sold.
Most consignment splits are 60/40. This means that you’ll get 60% of the revenue, while they retain 40%. It is incredibly important to factor this into your pricing to ensure that your profit margin is still viable.
Time periods
You’ll want to have a think about the length of time you wish to leave your products in the store for before you have the option to pick them up. This is particularly important if you sell seasonal items: a month-by-month approach may work best here to ensure that you have a chance to sell the stock before the season is over.
If the store has a lower volume of foot traffic, you might find that a longer consignment cycle works better for both to ensure that the consignee has a good chance of making sales for you.
Payment Schedule
The agreement should also state when payment will be made for sold items and the method of payment. Ensure that your consignee sticks with agreement here as late payments may signify that they have cashflow issues.
Shipping Costs
If you are intending to ship products to your consignee, it is essential to agree on who is going to be responsible for the postage costs. You may decide to pay for the shipping of products out to the consignee, with the consignee being responsible for any costs involved in returning unsold stock back to you at the end of the consignment period.
Incidentals
You’ll also want to define what happens when an item is stolen, lost or damaged - this is often where agreements and partnerships come apart, so it’s very wise to get this sorted out upfront.
You’ll want to think about who is responsible when the stock is lost in transit, or is damaged or stolen whilst being in the store under the care of the consignee.
Remember that from a purely legal perspective, the consigned stock at all times remains your property and loss and breakage is still ultimately your responsibility.
