What Is Consignment Selling? Meaning, Process and Example

Consignment selling is an arrangement where a supplier hands goods to a store to sell, and the supplier remains the owner of those goods until a customer buys them. The store pays nothing up front. It pays the supplier for the units that sell, usually after keeping an agreed commission or margin. Unsold goods can go back to the supplier.

The supplier is called the consignor and the store is the consignee. The word “consignment” here has nothing to do with banking. It simply means goods placed in someone else’s care for sale.

How does consignment work?

The steps are almost always the same:

1. The supplier and the store agree on the products, the retail price and each side’s share of every sale.
2. The supplier delivers the goods with a delivery note listing quantities and prices.
3. The store displays and sells the products. Until they sell, they still belong to the supplier.
4. On a regular schedule (weekly, every two weeks or monthly), someone counts what is left on the shelf. Units delivered minus units remaining equals units sold.
5. The store settles up: it pays the supplier the amount owed for the units sold.
6. The supplier restocks, collects slow sellers, or takes back damaged items, as agreed.

Consignor and consignee: who is who

You will see these two words in any written agreement. In everyday conversation, people just say “the supplier” and “the store.”

A worked example

Say a small company makes hot sauce and leaves 20 bottles at a local shop. The shelf price is 10 and the shop keeps 30% of each sale, which is 3 per bottle.

At the end of the month, 8 bottles are left, so 12 sold.

• Sales to customers: 12 x 10 = 120
• Store commission: 12 x 3 = 36
• Amount owed to the supplier: 120 - 36 = 84

The 8 remaining bottles still belong to the supplier. They can stay on the shelf for another month or be picked up. These figures are only an illustration. Every agreement sets its own percentage and schedule.

Pros and cons for the supplier

Advantages

• You can get into stores that would not buy a full order up front.
• A new product can be tested while the store takes on little risk.
• You reach more points of sale without opening your own shop.

Risks

• Your goods sit in a place you do not control.
• You are paid later, after the sale happens.
• If nobody counts stock regularly, gaps show up late and are hard to explain.
• Damaged or missing items can cause disputes if the agreement does not say who pays.

Pros and cons for the store

Advantages

• No cash is tied up in inventory.
• The store can offer more variety without buying more.
• Slow sellers go back instead of staying on the shelf.

Risks

• Shelf space goes to products that may not sell.
• The store has to track what it received, sold and returned.
• It is responsible for goods it does not own, so it needs to know what happens if something breaks.

When consignment makes sense

Consignment suits new or little-known products, small suppliers selling to stores that prefer not to take on large orders, and goods that sell steadily but where the buyer would rather pay as units move.

It works less well for short-life perishables, very fragile items, or high-value goods the supplier cannot afford to lose track of. In those cases, either set stricter terms or sell another way.

How consignment differs from a wholesale purchase

In a wholesale purchase, the store buys the batch and pays for it, perhaps on credit terms. From then on the goods are the store’s, and if they do not sell, that is the store’s problem. In consignment, the risk of slow sales stays with the supplier.

For that reason a supplier often asks for a margin that covers the risk, and a store often accepts products it would not otherwise buy. Neither approach is better in every case. It depends on the product, the trust between the parties and the cash each side has available.

What each side needs to record

Consignment works as long as both sides can answer three questions at any time: how much was delivered, how much sold, and how much is left. If one of the three cannot be backed by a document, differences appear.

• The supplier keeps delivery notes, counts and payments received.
• The store keeps what it received, sold and returned.
• Both should be able to compare their records at each settlement.

A notebook or spreadsheet is enough for a single store. With several, the work grows quickly.

Common terms in a consignment agreement

A clear agreement usually covers:

• The product list and retail prices.
• The store’s commission or margin.
• How often stock is counted and who does it.
• When and how payment follows each count.
• What happens to damaged, expired or lost goods.
• How unsold goods are returned or collected.
• How either side can end the arrangement.

For a step-by-step walkthrough, read how to sell products on consignment to stores. For the day-to-day side, see consignment inventory management and tracking consignment stock.

Tax and accounting treatment of consigned goods depends on local rules. Check with an accountant before you sign.

Frequently asked questions

What is the meaning of consignment?

It means leaving goods with another party to sell on your behalf. You keep ownership until the sale, and the seller keeps a commission or margin.

How does consignment work for a store?

The store receives goods without paying for them first. It sells them, counts what remains on a set schedule, and pays the supplier for the units sold.

Who owns consigned goods?

The supplier owns them until they sell to the final customer. The store holds them and is expected to look after them as agreed.

How much commission does a consignment store take?

There is no standard figure. It is negotiated between the supplier and the store and depends on the product, the volume and the services the store provides.

Keeping track without spreadsheets

If you work with several stores, COMPA lets you register each delivery, collect store counts through a simple link, and see what was delivered, sold and returned. You can also browse the modules or get in touch.