Questions from our Readers
Are goods "sold" on consignment actually sales? Is there
anything I should be concerned about as relates to my responsibilities
to collect the outstanding balance?
Merchandise transferred on consignment is not sold to the consignee.
This consignee does not own or pay for consigned inventory until and
unless it is sold. Since the supplier [the consignor] still owns the
inventory, the transfer of goods to the consignee under a consignment
agreement should not be recorded as a sale under Generally Accepted
What happens in a typical consignment arrangement is that if and when
the consignee sells your company's inventory it must report the sale
and send payment within a specified number of days. The problem is
that unless the consignor can periodically visit the consignee and
count the inventory on hand, the consignor must trust that sales are
being reported as they occur.
Account reconciliation is challenging under a consignment arrangement.
Why? Because the consignee does not own the merchandise in question
and [depending on the terms of the consignment agreement] may not necessarily
be responsible for loss, damage, theft or shrinkage of or to your merchandise.
When there is a discrepancy such as a shortage, the consignor often
must absorb the loss.