The consignor is an independent owner who transfers goods to the consignee for sale on their behalf. Consignee acts as an agent or middleman and the ownership of the stock remains with the consignor until the goods are sold.
Consignor, consignee concept is typically used in the case of auction. In the case of an auction, the person who wants to sell the goods/ property through auction is consignor, and the auction house is the consignee. The auction house arranges the auction and sells the goods/property on behalf of consignor and after-sale or finalization of the deal; it charges the fees or percentage of sale known as fees or commission.
Example of Consignor/Consignee Relationship
ABC Ltd. Manufactures Spices, and it wants to sell the spices throughout the world. To sell across the world, ABC Ltd. entered into various consignment agreements with the dealers around the world and made all arrangement to transfer some of the packets for sale and get the order. All dealers act as consignees. Upon each sale, ABC Ltd. will give dealers a fixed or variable commission.
Mobile manufacturing companies enter into an agreement with the online selling platforms like Amazon to sell mobiles on their behalf. The arrangement is called a consignment arrangement, the mobile manufacturing companies are consignors, and online selling platforms are consignees.
Responsibility of Consignor
- To transfer goods to the consignee.
- To provide sufficient stock to the consignee.
- To provide quality goods.
- To make available the consignment order on time to the consignee.
- To ensure goods placed with consignee are safe.
- To agree with the consignee in writing.
- To provide a timely commission to the consignee.
- To solve complaints from consignees.
- To ensure payment of goods sold by consignee received timely from the consignee and to co-ordinate with the consignee for payment.
- Saves time for selling or marketing the goods as the consignee does it.
- Helps focus on the quality of goods as the consignee makes sales.
- Saves the inventory holding costHolding CostHolding cost refers to the cost that an entity incurs for handling and storing its unsold inventory during an accounting period. It is calculated as the sum total of storage cost, finance cost, insurance, and taxes as well as obsolescence and shrinkage cost..
- Able to sell the products at the global level.
- Profit MarginProfit MarginProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. is low as the cost of commission is added, and the overall cost increased.
- Risk of goods held with consignee increases as stock is the responsibility of the consignor.
- Inventory holding cost is high if goods are not sold for a long time by the consignee.
- Difficulty in managing the stock if sales at the global level.
This has been a guide to What is Consignor & it’s Meaning. Here we discuss their responsibilities along with examples, benefits and limitation. You can learn more about from the following articles –