Posted in Marketing and Strategy Terms, Total Reads: 510
Definition: Guaranteed Sale
In such an arrangement, the manufacturer or the supplier takes back the goods which are yet unsold as on a predetermined specified date. It is also called consignment sale. In this, the seller is called the consignor and the buyer is called the consignee. The consignor sends the goods to the consignee without having received payment for the goods then. The consignee has to pay the amount only when the goods are sold. It is actually a delivery of goods not amounting to sale. The ownership of the goods still rests with the consignor and is not transferred to the consignee until the goods are sold. The unsold goods are taken back in a process called ‘sale or return’. So here, the consignee is actually acting as the consignor’s agent in selling the goods to a third party. The consignee has no liability except to reasonably protect the goods from damage. The consignee gets a commission for his services when the goods are sold. The goods on consignment remain on the consignor’s inventory and are excluded from the consignee’s inventory because the former still retains legal ownership of the goods.
Even though the goods have been transferred to the custody of the buyer, the seller has to take responsibility for any defect or damage. The drawback of this arrangement is that the consignee is not sufficiently incentivised to push the product sales because he knows that the unsold goods will be returned to the consignor usually at the consignor's expense.
The practice of consignment is widely used by newsstand magazine retailers, who can return the unsold magazine copies to their wholesalers. The consignor may request a payment in advance from the consignee which is subsequently refunded based on the sales returns.