Consignment

In this business arrangement, the consignor retains ownership of the goods until they are sold, meaning the consignee only pays for them after customers purchase them. Unsold goods can be returned to the consignor after a certain period, this helps to reduce the financial risk for the retailer. Revenue from sales is shared between the consignor and consignee, usually involving a commission for the retailer. This model allows suppliers to reach new markets with minimal upfront costs and enables retailers to expand their inventory without immediate investment.

Reduced Risk for Retailers: Retailers don't have to pay for goods upfront, reducing financial risk and allowing them to test new products without a significant investment.

Increased Market Reach for Suppliers: Suppliers can expand their market reach and presence without the need for additional capital outlay.

Inventory Flexibility: Retailers can expand their inventory with a diverse range of products, improving the variety offered to customers.

Improved Cash Flow: Both parties can maintain better cash flow management since payment is only made after the sale.

Stronger Relationships: Consignment fosters collaboration and partnership between suppliers and retailers, leading to potential long-term business relationships.

Reduced Overstock: Suppliers can reclaim unsold inventory, minimizing the risk of overstock and associated storage costs for retailers.

Delayed Payment for Suppliers: Suppliers receive payment only after the goods are sold, which can delay cash inflow.

Complex Tracking: Both parties need to closely monitor inventory levels, sales, and returns, which can complicate accounting and inventory management.

Dependence on Retailer Performance: Suppliers rely on the retailer's ability to market and sell the goods, which can be risky if the retailer does not perform well.

Potential for Disputes: Disagreements over unsold inventory, payment terms, and other contractual issues can arise, potentially straining business relationships.