Consignment can seem like a wonderful risk-free way to generate revenue: little to no upfront costs, exposure to a new clientele and the opportunity to get your products back if they do not sell. However, many entrepreneurs find themselves in less than ideal situations (situations they were not expecting) when consigning their products. Fortunately, many of these issues can be prevented by having one specific document: a solid consignment agreement! Here are 5 elements you should address in your consignment agreement.
Of course, please take this as legal information and not legal advice. If you have any questions about consignment, send me an email at email@example.com.
Of course, the first thing you are most likely thinking about when considering consignment is how much you will be getting paid once your product sells. It is therefore essential to address this in your written agreement. Negotiate a fair and advantageous percentage for both you and the retailer (and keep in mind you can negotiate even if you are not the one drafting this agreement) and make sure you address on what price this percentage will be calculated (as well as who will be fixing the price). For instance, you can set a minimum retail price to make sure you get a decent portion of the sale even if your item ends up in clearance.
#2 Payment terms and accounting
Selling is great, but it’s even better when you can estimate your cash flow and know when you will receive your portion of the sale. If your products can be returned, you might want to establish payments terms based on the retailer’s return policy (to make sure you do not get paid for an item that did not end up selling). As a product creator, you also want to ensure you are keeping track of your inventory with every retailer. Asking for a regular inventory update is therefore more than essential.
#3 Shipping charges
If you are negotiating with retailers who are not in your area and you are not able to deliver the items in person, it’s important to address shipping charges in your consignment agreement and who will be taking care of them (including charges for shipping the items back to you).
#4 Time frame
Another important element to address is how long the retailer will be keeping the item for. This is particularly important if you sell seasonal items such as summer dresses or Christmas-themed products. Decide on a time frame and make sure to include it in your written agreement. You should also add a period following this time frame during which your products must be shipped back to you or picked-up.
The last thing you want when you enter into a consignment deal is finding out your products cannot be sold because they have been damaged after being received by the retailer. One way to avoid this? Making sure your retailer has valid insurance (make it a habit to ask for proof of insurance).
Don’t forget these are not the only clauses you should be including in a consignment agreement! If you need any assistance with drafting a consignment agreement or reviewing one you were asked to sign, you can always reach me at firstname.lastname@example.org or you can click the link below to schedule a consultation.