A consignment contract is also known as consignment sales agreement or consignment inventory

agreement.

Consignment Agreement Overview

There are various reasons for businesses to go for consignment arrangements. Retail outlets may use
this model to understand the demand for a new product in the market.
A consignment arrangement allows these outlets to sell goods without having to purchase them,
which may require a significant initial investment. The outlets need to pay for the consigned goods
only when they are sold.
Artists, creators, and manufacturers who are confident about the sales of their goods may be willing
to take the initial risk for the consignee. Manufacturers can mitigate their risk to some extent by
requiring the retail outlets to invest in promoting and marketing the goods.
Execution of a consignment contract allows each party to focus on its expertise. The manufacturer
can focus on producing or creating, while the retailer can focus on selling. A consignment contract
thus promotes the division of labor and a profitable business arrangement.
Consignment arrangements can thus be profitable for both parties. However, it's advisable for both
sides to maintain proper paperwork to protect their individual interests.
A good consignment agreement includes provisions for inventory control and clearly spells out the
rights and responsibilities of both parties. A written agreement goes a long way in minimizing
confusion and misunderstandings. It helps the parties understand the expectations and obligations
arising out of the arrangement.