In the fields of accounting, business and finance, the meaning and usage of the term consignment significantly differ from those of a regular sale. The term consignment refers to a complete business model which involves all business activities like purchase and transportation of goods, sale of goods, expenditures, and ascertainment of profit or loss. The term sale, in its basic meanings, refers to just a component or a single business activity of a whole business model wherein goods are sold to customers for cash or on credit.
Many notable points of difference between consignment and sale are listed below:
1. Parties involved
- The parties involved in consignment are consignor and consignee.
- The parties involved in sale are seller and buyer.
2. Transfer of ownership
- The transfer of ownership from consignor to consignee does not occur in consignment.
- The transfer of ownership in goods occurs in case of a sale transaction.
3. Relationship between parties
- In consignment model of business, the consignee acts as consignor’s agent.
- In a sales transaction, the buyer and seller have no such relationship between them. However, if the goods are sold on credit, the relationship of creditor and debtor between seller and buyer comes into existence.
4. The property
- In consignment, the goods are the property of consignor unless and until they are actually sold to customers by the consignee.
- In sale, the goods immediately become the property of buyer.
5. Entitlement to commission or remuneration
- As per agreement between consignor and consignee, the consignee usually receives a commission at certain pre-agreed percentage for the goods sold by him on behalf of consignor.
- No such agreement exists between seller and buyer. It is just the ownership in goods which gets transferred from one party to other i.e., from seller to buyer.
6. Who bears the loss of goods
- In consignment, all normal and abnormal losses of goods due to fire, theft, flood, accident etc. are born by the consignor.
- As the property in goods is transferred to buyer in case of a sale, any loss occurred after the delivery of goods has been made is born by the buyer.
7. Liability for the sale proceeds
- Consignee is responsible to remit the sale proceeds (after deducting his commission and expenses) to the consignor. It, however, does not apply to the unsold stock.
- The buyer is only liable for the payment of item(s) purchased from the seller.
8. Profit or loss
- The profit or loss resulting from the consignment belongs to consignor.
- The profit or loss resulting from a sale transaction belongs to the seller.
9. Recovery or return of goods
- The consignor has the legal right to get back or recover the unsold goods from consignee.
- The seller cannot recover or get back the sold goods from the buyer. The buyer can, however, return the goods to the seller under certain circumstances.
10. Account sales
- As per agreement, the consignee sends an account sales to the consignor to communicate his consignment related activities such as sale of goods, money spent for expenses and the amount deducted as commission etc.
- The buyer is not responsible to communicate any of his activities to the seller. He, however, reserves the right to give his positive or negative feedback to the seller about the item bought by him.
11. Scope of terms
- The term consignment refers to a complete business model.
- The term sales refers to just an activity of the whole business model.
12. Flow of cash