What Is Consignment: A Simple Guide

What Does “Consignment” Mean in Business? #

Consignment is a business deal between two people:

• The consignor (you – the business or product owner)
• The consignee (the seller – like a shop or online store)

You, the consignor, give your products to someone else to sell. They don’t pay you right away. You still own the products. When they sell something, they take a small share and give the rest of the money to you.

In plain words: You allow someone to sell your stuff, and they pay you after they sell it.

With consignment, you can get your products into more shops or markets without having to pay for space, storage, or salespeople upfront.

Why Is Consignment Good for Indian Small Businesses? #

India has lots of small businesses. Many of them make clothes, crafts, toys, food, or other products. But these businesses don’t always have money to open shops or websites of their own.

That’s where consignment helps. You can:

• Show your products in more places
• Reach new customers
• Save money since you don’t pay the seller before they sell

This setup works well in tiny towns and large metropolitan areas too. It opens doors without significant risks.

How Does Consignment Help Small Businesses Work Better? #

Consignment makes your work simple and smooth. Here’s how:

• You don’t have to pay rent for shops
• You don’t have to hire sales staff
• You can keep track of stock easily
• You only receive payment when you make a sale.
• You can test new products in new places

Top Features of Consignment #

You Keep Ownership Until the Product Sells

When you give items on consignment, you still own them. The seller does not buy them from you. This means:

• You don’t lose money if the product doesn’t sell.
• You can get the items back if needed.
• You can make sure the product is well-handled and shown the way you want.

Stock Is Easy to Manage

Since you know what you gave and where, it’s easy to track inventory. You can also:

• Restock when items sell well
• Move slow-selling products to other sellers or places
• Keep inventory small and smart

Split the Money – Win-Win for Everyone

When a product sells, both the consignor and consignee make money.

For example:

• The product sells for ₹100
• The seller keeps ₹20 (20% share)
• You get ₹80

Both sides win. It builds strong business partnerships.

Lower Risk for the Seller

Consignees (shops/vendors) like consignment because they don’t have to:

• Pay before selling
• Worry about products that don’t sell

Sellers are more likely to take your products, even if your brand is new.

Flexible Payments

Most of the time, the seller pays you after making a sale. This is great for:

• Cash flow management
• Avoiding debt or high-interest loans
• Getting paid based on actual sales, not promises

Keep Good Records

Proper documentation is crucial. Maintain a written consignment contract. Record:

• The number of items you provide
• The price of each item
• The seller’s commission (their share)
• The method and timing of your payment

Why Small Businesses Should Choose Consignment #

• A Safer Selling Approach: You can sell goods without initial expenses, reducing financial risk and avoiding substantial loans.
• Expand Into New Territories: Consignment enables you to explore new markets without needing a physical store, uncovering customer preferences and assessing potential for future investments.
• Maintain Cash Flow: Without upfront store costs, you keep more money. This enables you to invest in product development, boost online marketing efforts, or pay employee wages and expenses.
• Professional Inventory Management: Reduce waste by maintaining inventory flow, monitoring best-sellers, and halting the production of poor performers.
• Cultivate Strong Business Relationships: Collaborating with sellers expands your network, enhances understanding of customer needs, and aids in developing effective marketing strategies.

How the Consignment Process Works (Step-by-Step) #

• Identify Suitable Vendors: Start by exploring local stores and reliable individuals for distinctive products before considering online options.
• Negotiate Terms: Clearly outline item prices, commission percentages, payment timelines, and duties for unsold items in a simple document.
• Draft a Clear Contract: Develop a written contract that specifies items, pricing, timelines, and responsibilities, and includes signatures from both parties.
• Dispatch Your Inventory: Organize your items neatly, label them clearly, and maintain a record of the quantity sent.
• Monitor Sales: Keep track of sales performance by identifying fast-selling items, slow-moving products, and the most successful locations.
• Observe and Adapt: If possible, visit the store, seek customer feedback, understand preferences, and adjust your product or pricing accordingly.
• Conduct Monthly Reconciliation: Compare your inventory with the seller’s records to ensure accurate payments and inventory levels.

Common Consignment Problems and How to Fix Them #

• Monitor Items Closely: Utilize basic inventory software or organized spreadsheets. Update records accurately after every sale or return.
• Avoid Payment Delays: Establish explicit payment terms in contracts. Define due dates precisely (e.g., “Payment due by the 7th of every month”).
• Ensure Sales Match Inventory: Request weekly or monthly sales reports. Cross-verify inventory independently whenever possible.
• Ensure Product Excellence: Provide precise handling guidelines, establish quality benchmarks in contracts, and frequently review product displays and storage.
• Avoid Legal Issues: Use straightforward but complete written agreements. Keep detailed records of all discussions, exchanges, and payments.

Best Tips to Succeed with Consignment #

• Always use written agreements
• Update your stock records weekly
• Talk to the seller regularly
• Check what’s selling—and what’s not
• Use technology to save time
• Be honest, flexible, and professional
• Build strong, friendly business partnerships

How Vyapar App Helps #

• Track Your Inventory: It shows you how many items you sent, how many sold, and how many are still left.
• Monitor Sales Easily: Know who sold what and when. Get numbers fast and accurate.
• Create Invoices and Bills: Make simple bills in one click. Add seller commission and tax too!
• Get Business Reports: See what’s working. Plan better. Make choices based on real facts, not guesses.

FAQ’s: #

Who owns the items in consignment?

You, the consignor, still own them until you sell them.

Who should use a consignment model?

Small businesses, new businesses, or those with little cash can benefit a lot.

What if the item doesn’t sell?

You can take it back or move it to another seller. It depends on your agreement.

How do sellers make money?

They take a small commission from each sale. That’s how both parties earn.

Can I change the terms later?

Yes! Talk with your seller and write new terms.

Conclusion #

Consignment is a smart, low-risk way for small businesses in India to grow. It helps you sell more, spend less, and build strong ties with sellers. Best of all—you can start without needing lots of money.