Consignment means the vendor keeps ownership of goods sitting in your location until you actually use or sell them. You only pay when the stock leaves your warehouse. This is legally cleaner than vendor-managed inventory because ownership stays with the vendor. However, you need to be careful: if the vendor goes bankrupt, their creditors might claim the stock in your building, leaving you without the goods you thought you could use. The legal principle is "title" (ownership)—the contract must clearly state the vendor retains title until consumption.
Get written confirmation that the vendor's creditors cannot claim consignment stock if the vendor fails financially—this is called a "creditor-proof" arrangement. Require the vendor to maintain insurance on the stock while it's at your location. Set clear rules for how long stock can sit before you must either use it or return it (typically 90-180 days). ---
Frequently Asked Questions
What does this clause mean in simple terms?
Consignment means the vendor keeps ownership of goods sitting in your location until you actually use or sell them.
Why should I care about this clause?
You only pay when the stock leaves your warehouse.
What are my options?
This is legally cleaner than vendor-managed inventory because ownership stays with the vendor.
How does this affect small businesses?
However, you need to be careful: if the vendor goes bankrupt, their creditors might claim the stock in your building, leaving you without the goods you thought you could use.