A consignment agreement is a short, practical contract that lets an owner—called the consignor—place goods with a third-party seller—the consignee—who pays for the goods only after they are sold. Until that moment, title stays with the consignor. The guide below equips you with a step-by-step checklist, fee breakdown, and an editable template to keep the paperwork painless.
Why choose consignment? Retailers, wholesalers and even Etsy power-sellers like it because they can test new inventory without tying up cash, while suppliers expand their reach without opening more stores. The flip side is legal: who carries the loss if stock is damaged, what if the reseller becomes insolvent, and how are VAT and commissions recorded? Getting those points wrong can turn flexible trading into an expensive headache.
This article walks you through the critical clauses—ownership, risk, payment timing, returns, and dispute resolution—using Dutch law as the reference point and flagging any EU or US twists along the way. You will finish with a printable checklist and a contract template you can adapt in minutes, backed by practical tips from our commercial lawyers.
What Is a Consignment Agreement?
A consignment agreement is a written contract under which the consignor delivers goods to the consignee for sale, storage, or distribution while retaining legal title until a buyer pays. Book 3 article 92 of the Dutch Civil Code (retention of title) underpins this split between ownership and possession; US readers will recognise a similar concept in UCC §2-326. Because title has not yet passed, the goods stay on the consignor’s balance sheet and the consignee carries them “on memo” only.
The moment of title transfer—and with it the economic risk—must be fixed in the contract: usually at the point of cash collection or confirmed card transaction. Whoever bears the risk before that instant should hold appropriate insurance and record the arrangement in writing to avoid disputes with creditors or tax authorities.
Consignment vs Traditional Sale
| Feature | Consignment | Traditional Sale |
|---|---|---|
| Payment timing | After resale | Up-front |
| Ownership until resale | Consignor | Buyer |
| Balance-sheet treatment | Inventory stays with consignor | Inventory moves to buyer |
| Unsold stock | Returned or stored | Buyer’s problem |
Typical Industries and Use Cases
- Fashion boutiques testing new designers
- Art galleries exhibiting on behalf of artists
- Specialty food producers placing goods in farm shops
- OEM spare-parts suppliers keeping stock at client premises
- Cross-border e-commerce hubs holding inventory for EU fulfilment
Legal Ownership and Risk Until Sale
In Dutch law the arrangement resembles bailment: possession shifts, ownership does not. By registering an extended retention-of-title clause in the insolvency register, the consignor can reclaim goods if the consignee goes bankrupt. Without that filing, the goods may fall into the insolvency estate, exposing the consignor to loss.
Parties and Their Responsibilities
A consignment agreement only works when each player knows exactly what is expected of them. Dutch contract law calls this “duidelijkheid scheppen”—creating clarity. The contract should therefore spell out who owns the goods (consignor), who tries to sell them (consignee), and which outsiders may touch or move the inventory. Stating these roles up-front avoids later fights about payment, insurance claims, or tax filings.
Consignor Obligations and Rights
- Deliver goods that meet the agreed specifications, free of third-party liens.
- Keep the goods insured for their full replacement value until legal title transfers.
- Supply marketing materials or UPC/EAN codes where needed.
- Audit the consignee’s sales records and stock counts on reasonable notice.
- Reclaim unsold or unpaid goods once the term ends or upon the consignee’s default.
Consignee Obligations and Rights
- Exercise due care comparable to a “good merchant” (Dutch Civil Code art. 7:401).
- Store and label the goods so they remain identifiable as consignor-owned.
- Report sales, returns, and inventory shrinkage at the agreed intervals.
- Remit proceeds minus commission within the settlement window settlement window—often 7-30 days.
- Promote the products; the contract may set minimum display standards or marketing spend.
Third-Party Involvement: Warehouses, Shippers, Insurers
If a 3PL warehouse, carrier, or insurer is involved, obtain a written acknowledgement that the consignor retains title. Under the CMR Convention, carriers are liable for loss during international road transport unless exempted, so match insurance limits to that exposure. For warehouse storage, have the bailee sign a “consent to hold” letter so the consignor can retrieve stock directly if the consignee becomes insolvent.
Essential Terms to Include (The Complete Checklist)
Use this section as a line-by-line drafting aid. Print it, highlight it, and do not sign your consignment agreement until every square is ticked. A missing clause can shift thousands of euros in liability or leave VAT unclaimed.
- Goods description & quality
- Pricing, mark-ups, discounts
- Payment schedule & paperwork
- Risk, insurance, security interest
- Contract term & returns procedure
- Dispute forum & governing law
- Regulatory compliance (Dutch / EU)
- Signatures & annexes
Description of Goods and Quality Standards
List SKU, serial or lot numbers, condition, expiry dates, and packaging rules. Add clear photos or third-party inspection certificates so “Grade A” means the same to both sides.
Pricing, Mark-ups, and Discount Policies
State the retail price or the formula (e.g., wholesale + 30%). Spell out who may run promotions, the maximum discount allowed, and whether clearance sales need the consignor’s written consent.
Payment Terms and Accounting for Sales
Choose settlement frequency—weekly, fortnightly, or monthly. Require POS reports, VAT invoices, and proof of refunds. Late-payment interest should mirror Dutch statutory commercial interest (wettelijke handelsrente).
Risk of Loss, Insurance, and Security Interest
Clarify when risk passes: on physical sale, on cash receipt, or other trigger. Demand “all-risk” insurance for full replacement value and register a retention-of-title or UCC-1 filing to beat competing creditors.
Term, Termination, and Return of Unsold Goods
Set a fixed term or rolling notice (e.g., 30 days). Allocate freight and restocking costs for returns. Add an automatic repossession right if payment is overdue.
Dispute Resolution and Governing Law
Name Dutch law and exclusive jurisdiction of the Amsterdam District Court, or opt for NAI arbitration with English as the procedural language to reassure international partners.
Compliance with Dutch & EU Regulations
Confirm CE marking, REACH chemical disclosure, WEEE take-back duties, and consumer-law information requirements. Non-compliance can void the contract and trigger administrative fines.
Fee Structures and Cost Allocation
Before signing, pin down every euro that will change hands. Consignment makes cash flow lighter, but if the contract is vague on fees the margin can vanish in hidden storage bills or unplanned markdowns. Agree who pays what, when, and how adjustments are logged.
Commission Models Explained
Most Dutch shops run a straight percentage split—60 / 40 or 70 / 30 in favor of the consignor. Sliding scales reward fast sales (e.g., 25 % if sold within 30 days, 35 % afterward), while flat fees suit low-value items. Add caps for bulk or B2B orders to keep incentives aligned.
Storage, Shipping, and Handling Costs
Spell out warehouse rent, pallet fees, and pick-and-pack charges. If goods are returned, note whether the consignor or consignee covers inbound freight and any restocking penalty. Reference CMR liability for cross-border road transport.
Marketing and Promotion Expenses
Window displays, newsletter spots, and Instagram ads cost money. Set a monthly ceiling or require written approval above a threshold. Define whether promotional discounts reduce commission or are absorbed entirely by the consignor.
Taxes, BTW/VAT, and Customs Duties
In the Netherlands, VAT is due only when the consignee sells the product, so cash flow stays neutral until checkout. For intra-EU transfers use the call-off-stock rules; exports outside the EU need export proofs to apply the 0 % rate. List who files customs declarations and pays any import duties.
Drafting and Negotiating Tips for Businesses
Even a “standard” consignment agreement can tilt the balance of risk with a single sentence. Before the first draft changes hands, decide what you can’t live with, what you can trade, and who will sign off internally. The quick-hit pointers below help you reach signature without surrendering margin or ownership rights.
Due Diligence Checklist Before Signing
- Pull the consignee’s latest annual accounts and check for existing liens in the Dutch pledge register.
- Verify that insurance certificates list the consignor as an additional insured.
- Inspect storage premises (or request geo-tagged photos) to confirm segregation of stock.
- Run reputation searches: unpaid-supplier claims, BBB/Trustpilot ratings, court filings.
- Confirm the POS system can generate SKU-level sales reports matching your audit needs.
Red Flags and Common Pitfalls
- “Pay when paid” language with no fixed settlement deadline.
- Unlimited right for the consignee to discount or bundle your products.
- Broad indemnities that make the consignor liable for in-store accidents or consumer misuse.
How to Use Templates Safely vs Custom Drafting
Start with a vetted template to cover the basics, then layer in business-specific annexes: batch-tracking for perishables, API data feeds for real-time inventory, or multilingual warranty cards. Always update the governing-law clause and VAT wording before sending the draft out.
When to Seek Independent Legal Advice
Get Dutch-qualified counsel if the deal value tops €50k, crosses borders, involves regulated goods (food, medical devices, lithium batteries) or if either party insists on arbitration. A short review now is cheaper than litigating ownership after an insolvency.
Template and Sample Clauses You Can Repurpose
Below is a lean template toolkit plus two plug-and-play clauses. Swap the bracketed text, keep the numbering tidy, and your first draft is halfway done.
Editable Consignment Agreement Template Walk-Through
The document flows from parties to signatures so reviewers don’t get lost:
- Parties & definitions
- Goods specs
- Pricing/commission
- Risk allocation
- Reporting & payment
- Termination & law
Sample Risk of Loss Clause
Risk of Loss. Title and risk stay with Consignor until the Goods are scanned as “Sold” in Consignee’s POS. After that moment, risk passes to the buyer. Consignee shall maintain all-risk insurance for the replacement value.
Sample Termination and Unsold Goods Clause
Termination & Unsold Goods. Either party may terminate on 30 days’ written notice. Within 10 days, Consignee must provide an inventory list and, at Consignor’s option, return or purchase all unsold Goods at the agreed wholesale price.
Customizing for Cross-Border Transactions
Cross-border deals need a few extra tweaks:
- Currency & VAT
- Incoterms point
- Bilingual versions
- Arbitration seat
Quick Answers to Common Consignment Questions
Below are concise answers to questions clients ask most.
What is the purpose of a consignment agreement?
A consignment agreement lets suppliers reach new buyers while keeping ownership. The consignor holds title, the consignee earns commission, so sales risk is shared.
How do I write a consignment agreement step-by-step?
- Name the parties
- Describe goods
- Set price split
- Fix payment schedule & risk
- Add term, law, and signatures
What happens if goods are damaged before sale?
Risk clause decides. If on consignee, their insurance pays; if on consignor, they claim and replace goods.
Key Takeaways Before You Sign
- Nail down ownership. State retention of title and register it if possible. Without it, your goods could disappear into an insolvency estate overnight.
- Put every euro on paper. A line-item commission table, caps on promo spend, and clear shipping cost allocation avoid unpleasant surprises that wipe out margin.
- Manage risk early. Agree on who insures what, when risk shifts, and which court or arbitrator will hear a dispute—then double-check that the policy and clause language match.
If any of those boxes feels shaky, have our commercial contract lawyers review your draft. A check with Law & More is cheaper than litigating later.