Commission merchandise is merchandise given to a third party authorized for sale.
This merchandise is also known as consignment merchandise. The agents involved in this operation are:
- Client : It is also known as consignor, it is the person or entity that owns the property of the merchandise. Therefore, it is the person who confers the commission on a third party.
- Commissioner : It is the person or organization that receives the merchandise to sell it. That is, who performs the commission. It is also known as a consignee.
Commission merchandise characteristics
Some characteristics of consignment merchandise are the following:
- The property of the merchandise does not cease to be the client. This, despite the fact that the commission agent is in charge of selling it and who has it in his possession.
- Only the commission agent commissioned by the client can make the sale of the merchandise.
- The income from the sale of the merchandise is for the client. However, a percentage of that income is charged for the consignee’s service.
- The tax caused by the sale of the merchandise falls on the client. On the other hand, the commission agent is responsible for the commission tax.
Obligations and rights of the parties
These are some of the rights and obligations of the commission agent:
- You have the right to return merchandise with manufacturing defects.
- Charging a commission for the sale of the merchandise is your main right, calculated on the sales income.
- He is in charge of keeping the products in good condition. In this sense, you are obliged to be responsible for the damages caused by the merchandise in your custody.
- You are obligated to pay for the lost merchandise.
- You must request permission from the client to make sales on credit.
- He is obliged to send the client the status of the merchandise sales.
On the other hand, these are some of the rights and obligations of the principal:
- You have the right to charge the commission agent periodically for the proceeds of sales.
- You have the obligation to replace the merchandise with a manufacturing defect.
- You are obligated to pay the commission agent for your service.
- You must carry out the inventory replenishment of the commission agent as many times as necessary.
Advantages and disadvantages of consignment of merchandise
Some of the advantages of consignment of merchandise are the following:
- Merchandise on commission is an opportunity for specialization. For example, the principal may specialize in the production of goods without dealing with distribution and sale. However, you could also take responsibility for the wholesale trade, awarding merchandise for the retail trade commission.
- On the other hand, the commission agent also has an opportunity to specialize in retail. In this sense, you would not have to make efforts in the production of goods.
- The manufacturer may have the merchandise ready for sale instead of having it in a warehouse.
On the other hand, some of the disadvantages of consignment of merchandise are:
- Although the merchandise is available on the shelves, the client does not receive the money until it is sold by the commission agent.
- The period from the moment of dispatch to the moment of receiving the money for the merchandise can be long. Therefore, the manufacturer must have enough cash to maintain its operations.
- If the commissioner’s merchandise competes with that of the principal, it may be detrimental to the latter. This, because the broker will be more interested in making a profit from the sale of merchandise he owns.