Consignment Agreement Policies

Having an agreement in place is very important if you want to be covered when dealing with customers in your consignment store. Having a consignment agreement in place is something that every consignment store owner needs to have, without question.

What Is A Consignment Agreement?

A consignment agreement is what you will present to your consignors when they bring you an item to sell. It outlines what is required of both you and the consignor. In this agreement several things will be decided, including what happens at the end of the consignment, what the split is on the product and how long the term is for the products to be on sale at your consignment store.

End of the Consignment

In the consignment agreement, the end of the consignment term clause is where you address what happens to the products if they are not sold at the end of the consignment term. There are several courses of action that can be used in this case. Some shop owners will reduce the price drastically and sell off the product as quickly as possible as the term nears to a close. Other shop owners will return the product to the consignor, and some will simply donate the product to a local charity.

The Split of the Product Profit

When you enter into an agreement with a consignor, you have to decide what your consignor is going to get for compensation. You should never allow yourself to get anything less than 50 percent of the sales. You are stocking the shelves with the product; you are advertising the products, so you should get more, but no more than 80 percent. Instead, you should have a 60/40 to 75/25 split with your consignor. Generally you will have about a 70/30 split on average.

Deciding On a Term

When you get into a consignment agreement with a consignor, you need to decide how long of a term the product will be on sale for. This can be anywhere from one month to a year, with most consignors will enter into a one-year agreement. This gives enough time for the product to be sold, but ensures that the product doesn't linger on your shelves, taking up space from things that could actually sell. Generally, if something has not sold within a year, then it is probably not going to sell. Your consignor may want it to stay on the shelf longer. You should choose a term of about six months to one-year. This gives enough time for you and it should satisfy your consignor's needs as well. Talking with your consignor and knowing what products sell and what products don't, will help you find a term length that will benefit both of you. Don't be pressured into keeping a product on the shelf for years.

Having a consignment agreement ensures that you are covered if there are any disagreements with your consignor. With everything outlined in an agreement, which will be signed by both you and the consignor, you will be protecting both you and the consignor. Before you do up a consignment agreement, you should talk to your accountant and lawyer. Both will be able to help you draw up a solid agreement that is fair and complete.

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