What is the difference between a consignment agreement and a sales agreement?

2 min readAug 4, 2022

First published: https://docpro.com/blog92/what-is-the-difference-between-a-consignment-agreement-and-a-sales-agreement

Do you have leftover stocks after a sale that you do not know what to do with? You might want to consider selling them under a consignment arrangement instead of throwing them out.

A consignment contract sets out the terms in which one party (the ‘consignor’) transfers goods to the other party (the ‘consignee’), granting them the legal right to sell on their behalf. The consignee acts as an agent in storing, selling, or transferring the good of the consignor’s goods and will be in possession of the goods rather than owning them. The consignee will receive a commission for goods that are sold. A free consignment agreement template can be found here.

Consignment agreements should be distinguished from sales agreements. In a sales agreement, the sale occurs between a buyer and a seller and is concluded once the goods are transferred to the buyer. The seller will then earn a profit.

Stakeholders in a consignment agreement

Consignor

The consignor is the owner of the goods. Ownership of the goods remains with the consignor during the consignment agreement.

Consignee

This is the person who will dispatch and arrange for a third party to purchase the consigned goods.

Purchaser

Purchasers can be consumers, another business, or a company that will purchase the goods.

What exactly is a Consignment Agreement? How is it different from a Sales Agreement?

A consignment agreement permits someone to sell goods on your behalf in exchange for a fixed fee or commission. This involves you (the consignor), transferring goods to the consignee, who will be your agent by selling the goods. While the consignee possesses your goods, you retain ownership until a third party purchases them. Usually, the consignee will store the goods in a warehouse until they are sold. When the goods are sold, the consignee will be paid a remuneration fee. If there are unsold goods, the consignee can return those goods to the consignor.

A sales agreement stipulates the terms of a transaction of goods for a price. The buyer will propose to buy goods for a monetary value. The seller will transfer both ownership and possession of the goods to the buyer. The contract will regulate the terms of payment and the description of goods. Additionally, instead of remuneration, the seller will profit from the sale.

What are the types of Consignment?

Outward Consignment

The consignee will send the goods to another place for sale. The consignor retains to be the owner of the property until they are sold.

Inward Consignment

Under the instructions of the consignor, the consignee will try to sell the goods.