How to Review a Consignment Agreement: A Clause-by-Clause Checklist

How to review a consignment agreement before you sign A consignment agreement turns on three things: who owns the goods, who carries the risk while they sit with the consignee, and how and when money comes back to the consignor. Get those three right and most of the agreement follows. Get them wrong and a fire, a bankruptcy or a slow payer can wipe out the value. Work through the checklist clause by clause. For each one, test it against two scenarios: the consignee's warehouse floods with your stock in it, and the consignee stops paying or goes insolvent while holding your goods. This is general information, not legal advice; for significant consignment, have a lawyer check the final draft. ## The clause-by-clause checklist ### 1. Title and ownership

• Does the agreement state clearly that the consignor owns the goods until they are sold to an end customer?
• Red flag (consignor): silence on title, or wording that reads like a sale, which could let the consignee's creditors claim your stock if it goes under. ### 2. The consignee's role and restrictions
• Is it clear the consignee holds and sells on the consignor's behalf and cannot pledge, encumber or sell the goods as its own?
• Red flag: no bar on the consignee using the goods as security, which puts your stock at risk if the consignee borrows against it. ### 3. Risk of loss and insurance
• Who bears the risk of loss, theft or damage while the goods are with the consignee, and who insures them?
• Red flag: the goods sit with the consignee for months with no clear risk allocation and no insurance obligation. After a loss, this is the clause everyone wishes they had read. ### 4. Storage and identification
• Must the consignee store the goods safely, separately, and keep them identifiable as the consignor's property?
• Red flag (consignor): goods mixed with the consignee's own stock, making them hard to recover and vulnerable to the consignee's creditors. ### 5. Pricing and discounts
• Is the sale price set by the consignor, and does the consignee need consent to discount?
• Red flag (consignor): the consignee can discount freely, cutting your remittance. Red flag (consignee): you are bound to a price that will not sell. ### 6. Commission or margin
• Is the commission or margin clearly defined on a clear base?
• Red flag: an ambiguous base that makes it hard to check whether remittance is correct. ### 7. Remittance and reporting
• How often does the consignee report sales and stock, and how quickly must it remit the consignor's share?
• Red flag (consignor): long or vague remittance periods and no obligation to provide a statement of units sold, held and returned. Without reporting you cannot tell what has sold. ### 8. Stock reconciliation and inspection
• Can the consignor inspect and take stock on notice? Is there a process to reconcile sold, held and returned units?
• Red flag: no inspection right and no reconciliation, so shrinkage goes unnoticed. ### 9. Unsold goods and returns
• Can the consignor recall unsold goods, and who pays return freight? What is the condition standard on return?
• Red flag: the consignor cannot recall slow stock, or must pay to get its own unsold goods back in poor condition. ### 10. Payment on insolvency
• What happens to money the consignee has collected but not yet remitted if it becomes insolvent? Are proceeds held for the consignor?
• Red flag (consignor): sale proceeds are not ring-fenced, so they fall into the consignee's general pool on insolvency and you rank as an ordinary creditor. ### 11. Taxes and documentation
• Does the agreement put GST, e-way bill and delivery-challan responsibilities on the right party for each movement?
• Red flag: silence on documentation, leading to compliance gaps when goods move between the parties. ### 12. Termination and wind-down
• Is notice reasonable, and is there a clear process to reconcile and return goods on termination?
• Red flag: termination with no clear wind-down, leaving stock and money unreconciled. ### 13. Assignment and sub-consignment
• Can the consignee pass the goods to a third party or sub-consign them without consent?
• Red flag (consignor): the consignee can move your stock to another party you have never vetted, making it harder to trace, recover and insure. ### 14. Governing law and disputes
• Is the forum fair and convenient, and is arbitration or court specified?
• Red flag: an exclusive forum far from the consignor that makes recovery uneconomic. ## Read it in this order Do not review a consignment agreement top to bottom. Start with title, risk and insurance (clauses 1, 3 and 7 on the list above), because together they decide who loses if the goods are destroyed or the consignee fails. Then read remittance, reporting and reconciliation together, because they decide whether you ever see the money. Only then check storage, returns, tax documentation and forum. Reading in that order keeps the clauses that protect your goods and your cash at the front, rather than letting a tidy price list distract from a missing insurance obligation. ## A quick note on the law In consignment the consignor keeps title until sale, and the consignee usually holds the goods as a bailee under the Indian Contract Act, 1872, with a duty of reasonable care. GST generally applies on sale to the end customer, but the movement of goods needs correct documentation including e-way bills and delivery challans, and treatment varies with the parties' registrations. Rules differ by jurisdiction, so for the UK, Ireland, Singapore, Australia or the US, check local sale-of-goods and tax rules. This is not legal advice. ## Where a contract workspace helps Reviewing one consignment agreement by hand is manageable. Reviewing many across several consignees, and then living with them, is where things slip: catching a missing risk-of-loss clause before a loss happens, chasing remittance on time, and making sure proceeds are ring-fenced against a consignee's insolvency. Drafting, reviewing, tracking and governing consignment agreements can live in one AI workspace tuned to how your company ships and settles. Adira takes that connected approach.