CONSIGNMENT: MEANING, DEFINITION, FEATURE

MEANING

Consignment  is a special type of trading in which a manufacturer or a wholesaler dispatches the goods to an agent to be sold on behalf of and at the risk of the manufacturer or wholesaler for a commission. The sender of the goods is known as cosigner and the person whom goods are sent is known as consignee. The relationship between the cosigner and the consignee is that  of principal and the agent. The goods are sold by the consign on the behalf of and at the risk of the consignor. The cosigner continue to the owner of the goods till is sold. The expresses incurred by the consignee is on behalf of the consignor. The consignee is entitled to a commission for his work.

DEFINITION 

Consignment may be defined as transferring the goods from the person to another person without transferring the ownership in order to make sale thereof.

Consignment of goods is the sending of them by the owner (consignor) to his agent (the consignee) who agrees to collect, store and sell them on behalf of the owner.

FEATURES

• Consignment is a mere transfer of possession of goods and it is not a sales 
• The sender of the goods is called consignor and the receiver of the goods is called consignee.
• The consignee is a commission agent of the consignor.  
• The goods are sold by the consignee on behalf of the consignor and he (consignee) is not responsible for any type of loss, damage of good or loss on account of non-recovery of credit sales.
• The expenses made by the consignee is reimbursed by the consignor.
• At the end of the year or when the sale is completed, the consignee sends the account sales to the consignor and remits the sale proceeds after deducting his expenses and c omission.
• The consignor and the consignee both keeps account for the consignment transaction.

Difference Between Consignment and Sale

Consignment is not a sale. For the difference between consignment and sale are:

• In case of sale, the ownership of the goods is transferred from the seller to buyer. But in consignment, the ownership of the goods is not transferred from the consignor to the consignee.
• In case of sale, any loss or damage to the goods after the goods are sold is to be borne by the buyer because risk passes  with transfer of ownership. But in consignment,any loss or damage to the goods is to be borne by the consignor as he is the owner of the goods.
• In case of sale, the seller prepare invoice. But in case of consignment, the consignor prepares proforma invoice.
• In case of sale, the seller fixes the price as per his choice. But in consignment the consignee charge the price as per the instruction of the consignor.
• In case of sales, the buyer meets his own expenses. But in consignment expenses incurred by the consignee are born by the cosigner.
• In case of credit sale, the relation between the buyer and the seller is that debtor and creditor. But in consignment, the relation between the consignor and the consignee is that of principal and agent.
• In the case of sale, the loss arising due to bad debt is always borne by the seller. But in consignment, loss of bad debt is born by the consignor unless the consignee get del-credere  commission to cover the risk.
• In case of sale, the buyer cannot return the goods except in case of damage or wrong quality. But in consignment the consignee can return the goods if can not be sold.
• Under a sale, both movable and immovable properties can be dealt. but on movable properties are sold under consignment.
• A sale is governed under the sale of goods act, 1930, consignment governed under the law of agency (Contract Act).

IMPORTANT TERMS

Invoice is a document which is issued by the seller to the buyer  at the time of actual sale. This contains the name and address of the buyer and particulars of goods sold like quantity,rates discount,taxes charged, total claim, date of sale etc. In case of consignment the consignor prepares a document similar to invoice containing the description of goods and sends it to consignee. This document is called Proforma Invoice . The word proforma is added before the word invoice beacus the actual sale has not taken place.

Thus Proforma Invoice is a statement prepared and send by the consignor to the consignee, stating the quantity, quality, price and other relevant details of the goods sell on consignment. The purpose of Proforma Invoice is to intimate the consignee about the detail description of goods dispatch and to appraise him the price above which he can sell the goods.