Important Difference Between Consignment and Sale You Absolutely Must Know
A sale is often confused with a consignment, because both are transactional agreements. As they are not the same, you should learn how they differ in many ways.
Consignment and sale are commercial arrangements. But they differ in ownership, scope, purpose, and parties involved. We explain the minute differences in areas that may seem interchangeable but are not.
Consignment vs Sale: Key Parameters to Look At
Here are some of the most important differences between consignment and sale.
| Parameters | Consignment | Sale |
| Meaning | Goods a consignor sends to an agent, distributor or sales representative for selling goods. | Transaction between buyer and seller in exchange for goods and money. |
| Ownership | Remains with the business until the agent sells the product. | Transferred right after the transaction is completed. |
| Relationship | The consignor is the principal, while the consignee is the agent. | The purchaser is the creditor, while the seller is the debtor. |
| Potential Liability | Remains with the consignor until the good is sold to the buyer. | Once the purchase is made, the risk transfers to the buyer. |
| Return of Goods | The agent or consignee can return the goods to the consignor when the goods are not sold. | The buyer can only return the goods to the seller through a legal agreement, as stated by the seller before the purchase. |
| Profits Earned | The consignor earns the profit and pays a commission to the agent for sales made. | The seller earns a profit once the sales are made. |
| Account Sales | The consignee periodically sends the consignor how many sales have been made. | The seller does not have to prepare such statements. |
Now let’s understand each of these terms in some more detail.
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What is a Consignment?
The etymology of the term consignment is Latin, consignare, translated in English to ‘to seal, register’. The term used later, around the 1600s in English, was ‘consign’, which meant ‘to transmit to another in trust for sale or custody’.
The meaning of consignment today is the same. But there are some additional terminologies associated that you must know about.
The term consignment refers to a trade agreement between a consignor and consignee. The consignor or principal is the one who owns the goods and dispatches it to the consignee or agent to sell them. The consignor agrees to pay the consignee or seller a commission based on the sales.
It is important to note that the consignor does not directly sell the product to the buyer. So the consignor is the owner of the product. They transfer the possession of the goods to the consignee who does not own the product. The consignee could be assumed to be the middleman in this equation.
This is one of the main areas of difference between consignment and sale, where the ownership is not transferred, but the possession is to the consignee. In the case of a sale, the buyer immediately owns and possesses the goods after the sale.
Process wise, the flow of goods and money goes through three elements linearly, from the consignor to the consignee to the buyer.
Another important aspect of a consignment is that it is time-bound. If the sales are not made within an agreed period, or there are no more customers to buy, the goods are returned to the consignee.
What is a Sale?
A sale refers to transferring ownership of a product from buyer to seller in exchange for assets or money. The buyer and seller here have to come to a specified agreement, and the product has to be available to the buyer to make a sale.
Sales can be of various types. One of the most common forms is the sale at a retail market, which could be a wholesale shop or departmental store. Other examples of sales types are investment sales, or a festive offer with discounted prices on a product.
In contrast to consignment, a sale requires two parties, at least, who are profiting from the exchange of goods. Sometimes the goods in consignments are not sold even when the owner of the goods dispatches them.
Parting Thoughts
So these are the main differences between consignment and sale. Hopefully, next time when you come across these terms in some group discussion, you can explain them clearly.
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FAQs
What are the benefits of consignment?
Consignment offers benefits to both the owner and the seller. Owners can reach a wider customer base without investing in a storefront, while sellers can expand their product offerings without upfront costs.
What are the benefits of a sale?
In a sale, the buyer immediately becomes the owner, enjoying full rights and responsibilities. Unlike consignment, there are no ongoing profit-sharing arrangements or the need to return unsold items.
What happens if consigned items don't sell?
If consigned items fail to sell within a specified timeframe, the owner typically has the option to reclaim the items or negotiate further with the seller. Unsold items may be returned or put up for sale at a discounted price.
Are consignment sales common in certain industries?
Consignment sales are prevalent in industries like fashion, art, antiques, and furniture. These industries often rely on consignment arrangements to showcase unique or high-value items.
Can a consignment arrangement turn into a sale?
While consignment agreements are designed to keep ownership with the owner until the item is sold, it is possible for a consignment arrangement to evolve into a sale if both parties agree to transfer ownership before the item is sold.
Aquib is a seasoned wordsmith, having penned countless blogs for Indian and international brands. These days, he's all about digital marketing and core management subjects - not to mention his unwavering commitment ... Read Full Bio
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