The term consignment refers to a form of delivery of goods in which the supplier acts as consignor and the customer as the consignee. The consignor is the owner of the goods until either an agreed period expires or the consignee removes the goods from the so-called consignment warehouse.
Process in the case of consignment transactions
The process of consignment is composed of the following steps:
- The goods are delivered to the customer in the consignment warehouse. The consignment warehouse is located at the customer’s premises.
- After the withdrawal of the goods, the customer receives a withdrawal document, which serves as the basis for invoicing (i.e. the customer receives an invoice according to the information recorded on the withdrawal document).
- The withdrawal of goods is reported to the supplier. At the moment when the customer takes the goods from the warehouse, he automatically concludes a purchase contract with the supplier.
- The customer becomes the owner of the goods, depending on what agreements were made in advance, at the time of removal or after payment.
- At the conclusion of the consignment transaction, the customer receives an invoice.
Supplier and customer determine what quantity of the goods should generally be available in the warehouse. If the stock falls below this level due to the withdrawal of a certain quantity, then it is the supplier’s responsibility to replenish the stock. Invoices for the number of goods withdrawn are issued at regular intervals thereafter. Depending on the agreement, the customer can receive the invoices, for example, weekly, monthly or even quarterly. In addition, it can be agreed whether the customer may take over a certain residual quantity of the consignment stock into its own stock after a certain period.
The advantages of consignment
For the customer, the advantage of a consignment warehouse is that he is free from logistical risks, such as late delivery. Since the goods are already at the customer’s premises but belong to the supplier until they are removed, the capital commitment for the customer is zero. In addition, the supplier continues to bear the risk for the goods until the final purchase. But the supplier also has advantages from a consignment warehouse. For him, among other things, the warehousing costs and the planning effort for transport are reduced.
International consignment
In case of international consignment within the EU, the delivery of the goods is duty-free. However, this does not mean that no sales tax has to be paid. It simply means that VAT is not due in the country of production, but in the EU country into which the goods are imported. In the national, as well as international consignment business, the transaction of the consignment business is concluded with an invoice including value-added tax (VAT). For a domestic business with domestic turnover tax and for international business with foreign turnover tax.
You can find more information under Reduced Delivery.
Image license: CC BY-SA 3.0, Author: KBS Industrieelektronik GmbH
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