Many young entrepreneurs introduce their products to the market by entering in consigning agreements with shopkeepers. Owners of shops often agree to such agreements because there's almost zero risk for them and they do no have to use their own money to put products in their stores. Rather, they earn money for putting other's people products into their shelves. Such arrangements are governed by a consignment contract which can be written as follows.
Identify the consignor and consignee. The consignor is the one provided the goods while the consignee is the one selling the goods.
- List the products consigned. Each product consigned should be described as accurately as possible, including sales prices. Provide picture of each product as amendment to the contract. Keep in mind that consignors retain ownership of the product even if it's already displayed in the store of the consignee.
- Describe the part of the consignee as regards to the marketing or selling of the product. Are the goods going to be featured in special sections or in regular shelves? This should be made clear in the contract along with the number of days that the consignment arrangement will last.
- Put down in writing the sharing arrangement concerning the proceeds of the sale. Some shop owners agree to a 50-50 sharing scheme but the regular scheme is 60-40. Sixty percent goes to the consignee and only forty percent goes to the consignor. You can even specify different sharing scheme for each product if you so desire.
- Clarify the ownership of the product before, during, and after the consignment period. Make it clear that the consignor retains total ownership of the product even when the products are in displayed in the consignee's store.
- Specify the risk incurred by the consignee during the duration of the consignment period. Once goods are delivered to the store, the consignee will have to pay the consignor the full price of each product loss or stolen.
- Include a cause that allows each party to call for an early termination of the contract. Be clear in stating what happens to the consigned products once the contract is terminated ahead of time.
- Specify what happens to the unsold products at the end of the contract? Do these immediately go back to the consignor, or is the consignee allowed to sell them for a discount. It could also be the case that the unsold products be forwarded to charities after the consignment period has elapsed.
- Stipulate the terms of payment. How many days should the consignee settle the payment of good sold during the consignment period and in what ways? List down all the available options for the settlement of account.
- Write down other terms and conditions of the product if there are any. This is very important. Do not forget to add clauses about severability, waiver, notices, governing laws, modifications, and successors and assignees.
If you follow the steps above, you should be able to write your own consignment contract. However, it is still very important that a lawyer looks at its to make sure that there are no loopholes and that the contract will be legal and binding for all parties concerned.