Consignment agreement

Last updated

A consignment agreement is an agreement between a consignee and consignor for the storage, transfer, sale or resale and use of the commodity. The consignee may take goods from the consignment stock for use or resale subject to payment to the consignor agreeably to the terms bargained in the consignment agreement. The unsold goods will normally be returned by the consignee to the consignor.

Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is responsible for distribution or retail operations.

Contents

Consignment and distribution agreements

It may be accompanied by a consignment agreement (Franchising, distributorship or OEM). Goods are stored at the premises of the distributor, or premises of a third party, at distributor's disposal, but remain the property of the exporter.

Franchising practice of the right to use a firms business model and brand for a prescribed period of time

Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee. In return the franchisee pays certain fees and agrees to comply with certain obligations, typically set out in a Franchise Agreement.

Distributor device in the ignition system of an internal combustion engine

A distributor is an enclosed rotating shaft used in spark-ignition internal combustion engines that have mechanically-timed ignition. The distributor's main function is to route secondary, or high voltage, current from the ignition coil to the spark plugs in the correct firing order, and for the correct amount of time. Except in magneto systems, the distributor also houses a mechanical or inductive breaker switch to open and close the ignition coil's primary circuit.

A party is a person or group of persons that compose a single entity which can be identified as one for the purposes of the law. Parties include: plaintiff, defendant, petitioner, respondent, cross-complainant, or cross-defendant. A person who only appears in the case as a witness is not considered a party.

This agreement decreases the exporter's risk because he remains the owner of the commodities in storage. The distributor does not need to pay until he has sold the commodities, so he improves his cash flow. Both parties must ensure that the consignment agreement is formulated very carefully, so no room for doubt remains with regard to third parties, specifically the distributor's creditors in case of his bankruptcy. The distributor and the exporter have incompatible interests. The distributor's interest will be to increase the amount of the stock in consignment because this has no effect on his cash situation. Therefore the parties should agree on reasonable stock rolling adapted to the market demand, and consider how quickly the exporter may produce and deliver additional goods in order to avoid stock disruption.

Cash flow movement of money into or out of a business, project, or financial product

A cash flow is a real or virtual movement of money:

A creditor is a party that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.

Fulfillment of certain conditions is requested by the customs and VAT authorities. Due to the European VAT rules, it is easier to have a consignment stock between EU countries. The distributor is required to keep accurate accounts, but dispensable to have a bonded warehouse. [1]

A bonded warehouse, or bond, is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the latter case a customs bond must be posted with the government. This system exists in all developed countries of the world.

See also

Related Research Articles

Trade credit is the credit extended by one trader to another when the goods and services are bought on credit. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is commonly used by business organisations as a source of short-term financing. It is granted to those customers who have a reasonable amount of financial standing and goodwill.

Wholesaling sale of goods or merchandise to retailers

Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional, or other professional business users; or to other wholesalers and related subordinated services. In general, it is the sale of goods to anyone other than a standard consumer.

Inventory goods held for resale

Inventory or stock is the goods and materials that a business holds for the ultimate goal of resale.

A grey or gray market refers to the trade of a commodity through distribution channels that are legal but unintended by the original manufacturer or trade mark proprietor. Grey market products are products sold by a manufacturer or their authorized agent outside the terms of the agreement between the reseller and the manufacturer.

Trade barrier Restrictions limiting international trade

Trade barriers are government-induced restrictions on international trade.

An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.

An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries a stamp duty is imposed as an ad valorem tax.

Resale price maintenance (RPM) (US) or retail price maintenance (UK) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices, at or above a price floor or at or below a price ceiling. If a reseller refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with it.

Many low-valued exports of goods from the Channel Islands to the United Kingdom were exempt from value added tax (VAT) until April 2012, due to the operation of an EU tax relief called low-value consignment relief (LVCR). LVCR was not limited to the Channel Islands, and continues to apply to all low-valued imports into the EU from other countries outside of the EU.

Missing trader fraud theft of Value Added Tax (VAT) from a government by organised crime gangs

Missing trader fraud and the related carousel fraud is the theft of Value Added Tax (VAT) from a government by organised crime gangs who exploit the way VAT is treated within multi-jurisdictional trading where the movement of goods between jurisdictions is VAT-free. This allows the fraudster to charge VAT on the sale of goods, and then instead of paying this over to the government's collection authority, to abscond, taking the VAT with them. This is termed "missing trader" as the trader goes missing with the VAT. "Carousel" refers to a more complex type of fraud in which VAT and goods are passed around between companies and jurisdictions, similar to how a carousel goes round and round.

An air waybill (AWB) or air consignment note is a receipt issued by an international airline for goods and an evidence of the contract of carriage, it is a document of title to the goods. Hence, the air waybill is non-negotiable.

A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer; and is also known as a distribution channel. A marketing channel is a useful tool for management, and is crucial to creating an effective and well-planned marketing strategy.

International Commercial Law is a body of legal rules, conventions, treaties, domestic legislation and commercial customs or usages, that governs international commercial or business transactions. A transaction will qualify to be international if elements of more than one country are involved.

The European Union value added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.

Document automation is the design of systems and workflows that assist in the creation of electronic documents. These include logic-based systems that use segments of pre-existing text and/or data to assemble a new document. This process is increasingly used within certain industries to assemble legal documents, contracts and letters. Document automation systems can also be used to automate all conditional text, variable text, and data contained within a set of documents.

Bill of lading document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment

A bill of lading is a document issued by a carrier to acknowledge receipt of cargo for shipment. Although in England, the term once related only to carriage by sea, a bill of lading may be used for any type of carriage of goods.

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution. VAT essentially compensates for the shared services and infrastructure provided in a certain locality by a state and funded by its taxpayers that were used in the elaboration of that product or service. Not all localities require VAT to be charged and goods and services for export may be exempted. VAT is usually implemented as a destination-based tax, where the tax rate is based on the location of the consumer and applied to the sales price. Confusingly, the terms VAT, GST, consumption tax and sales tax are sometimes used interchangeably. VAT raises about a fifth of total tax revenues both worldwide and among the members of the Organisation for Economic Co-operation and Development (OECD). As of 2018, 166 of the 193 countries with full UN membership employ a VAT, including all OECD members except the United States, which uses a sales tax system instead.

References

  1. ↑ Rigault, Didier (2010). International Business Agreements. Oslo: The International Business Law Group. p. 83. ISBN   978-82-991430-9-7.

Further reading

International Standard Book Number Unique numeric book identifier

The International Standard Book Number (ISBN) is a numeric commercial book identifier which is intended to be unique. Publishers purchase ISBNs from an affiliate of the International ISBN Agency.

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.