The popularity of global trading In the current corporate world has opened up multiple channels of transportation and sales for both buyers as well as sellers. The traditional channels in the sales process included only raw material providers, manufacturers, wholesalers, retailers, and then the end customer.
However, now, the ease of the internet and the adoption of an omnichannel sales channel has resulted in the popularity of consignment sales today. Before we jump into the nitty-gritty about consignment sales and the consignment sales process, let us first understand what consignment sales are below.
What Are Consignment Sales?
Most businesses get into some sort of agreement for trade before they begin working together. This applies to all different intermediaries in the sales and manufacturing process. A consignment sales process is an agreement of trade between two parties where one party allows the other one to sell the goods on their behalf. For instance, the seller’s party name Is X who is the consignor and the other party Y is the consignee who will be selling on their behalf.
The consignee or party Y is not a part of the sales process for a business or party X, however, they are the third party involved in the entire sales process to reach the customers. The only important part of the agreement is that for all the goods that are not sold by the end of the agreement of trade, party X has to accept them back from the consignee or party Y.
How Does It Work?
The entire agreement is fairly easy to understand as every time party X sends their goods to the consignee or party Y, there is no need for an entry to be made on the journal. But, every time the consignee makes a sale of the goods, they are required to pay the consignor the amount to sale. This is then taken up by the consignor to tally the records and maintain the entry as a debit for cash along with the credit for sales. Additionally, the same amount of sale paid to the consignor by the consignee is also adjusted with the inventory debit and cost of goods sold respectively.
In simple words, there are only two things to keep in mind before signing this trade agreement as a third party that include first that in case of limited sales of goods of the consignor, the remaining goods can be returned to the owner. Moreover, the consignee is only liable to pay the consignor for the goods sold, that too only after the sale is complete.
Benefits of Consignment Sales
Now that you understand the basics of consignment sales, it is important to also analyze the different advantages to both the consignor as well as the consignee to get into this trade agreement and some of them are as follows.
As far as the consignor benefits are concerned, they include:
● Reduction in expenses as inventory holding cost is removed.
● Reduction in time and effort required to create different listings for items to sell.
● No requirement to set up a separate intermediary to facilitate retail sales as the consignee takes care of it.
As far as the consignee benefits are concerned, they include:
● The first and the biggest advantage is that the consignee is not liable to pay the cost of the goods the consignor transfers to them, up until the sale is complete.
● In the case of unsold goods, the same can be returned to the consignor without any underlying risks or costs involved.
Overall, to conclude, the popularity of the consignment sales process is higher today than before because businesses are keen on growing by outsourcing parts of their sales process to third parties. It is an easy trade agreement that does not affect the relationship of the business or consignor with the customer but instead allows a better flow of goods in the entire sales process, without additional costs or risks for both the consignor as well as the consignee.
Also Read: How to deal with your excess Inventory?