The consignment process involves sending goods from a consignor to a consignee. The consignee is tasked with then selling the goods to an independent third party. Until the ultimate sale occurs, the consignor continues to retain ownership in the goods. For example, an artist has an arrangement with a gallery to sell his paintings. The artist is the consignor and the gallery is the consignee. When the gallery sells a painting, ownership transfers from the artist to the buyer of the painting. The buyer pays the gallery for the painting, the gallery extracts its commission, and then forwards the remaining amount to the artist.
This results in the following differences between the two entities:
- Shipping documents. The consignor is the shipper, and the consignee is the recipient.
- Ownership. The consignor is the initial owner of the goods, while the consignee may simply be an agent, not actually taking ownership of the goods. This means the consignor keeps a record of consigned inventory on its books until the goods are ultimately sold to a third party.
- Payment. The consignor retains title to the goods until payment is received from the consignee.