What Is A Consignment Agreement? (2026 Updated)

If you’re supplying products to a retailer, gallery, online marketplace operator, or even another small business, you’ve probably come across the idea of “consignment”. It can be a great way to get your goods in front of customers without the other party having to buy your stock upfront.

But consignment can also be surprisingly risky if you don’t set the arrangement up properly. The big reason is simple: you’re handing over your products, but you might not get paid until (and unless) they sell.

A well-drafted consignment agreement helps you lock in the practical details (like pricing and payment timing) and protect your rights (like who owns the stock, who wears the loss if goods are damaged, and what happens if the consignee becomes insolvent).

Below, we break down what a consignment agreement is, how consignment works in Australia, what clauses matter most in 2026, and the key legal issues to think about before you hand your inventory to someone else.

What Is A Consignment Agreement?

A consignment agreement is a contract where:

• the consignor (you, the supplier/owner of the goods) provides goods to another party, and
• the consignee (the seller/host business) holds the goods and sells them on your behalf.

In most consignment arrangements, you keep ownership of the goods until they’re sold to an end customer. The consignee then takes a fee or commission, and the balance of the sale proceeds is paid to you.

This is different from a “standard” supply arrangement where a retailer buys your stock outright (wholesale) and then resells it at a margin. With consignment, the consignee doesn’t usually pay you upfront for the goods - which is why the contract terms (and risk controls) matter so much.

Why Do Businesses Use Consignment?

Consignment is common where:

• a seller wants to offer a wider product range without carrying large inventory costs
• a supplier wants to test demand in a new location or customer base
• products are higher-value, unique, or hard to price upfront (for example, art, designer fashion, collectibles, or handmade goods)
• the supplier is scaling and needs more sales channels without committing to major wholesale discounts

If you’re considering a tailored Consignment Agreement, it’s worth thinking through the practical realities first: who controls the pricing, what “sale” means, and how you’ll get reporting you can actually rely on.

Who Are The Parties?

• Consignor: the party supplying goods for sale while retaining ownership until sale.
• Consignee: the party receiving goods and selling them to customers (usually in return for a commission/fee).

Depending on your industry, you might see different language (for example, “artist” and “gallery”, or “supplier” and “retailer”), but the underlying legal structure is the same.

How Does Consignment Work In Australia?

While every arrangement is a bit different, most consignment relationships follow the same basic flow.

Step 1: You Deliver Stock To The Consignee

You provide goods to the consignee to hold and display (in-store, at events, or online). A good consignment arrangement will include an inventory schedule so both sides are crystal clear on what’s been provided, when, and in what condition.

Step 2: The Consignee Sells The Goods To Customers

The consignee sells the goods to customers using their store, website, marketplace account, social media, or other channels.

This is where it becomes important to clarify who is responsible for:

• setting retail prices (and whether discounting is allowed)
• advertising and promotions
• handling customer enquiries
• refunds and returns

Even if you’re not the one directly interacting with customers, your brand and product reputation are still on the line.

Step 3: The Consignee Accounts To You And Pays You

Usually, the consignee must provide:

• sales reports (what sold, when, for how much, and any discounts)
• payment to you after deducting their commission/fee

One of the most common issues we see is that payment terms are vague. If the agreement doesn’t clearly state when you get paid (weekly, monthly, within X days of sale, etc.), you can end up chasing funds with very little leverage.

Step 4: Unsold Stock Is Returned (Or Dealt With Under The Agreement)

At the end of the consignment period (or if the agreement is terminated), the consignee should return unsold goods. You’ll want clear rules on:

• how much notice is required to end the arrangement
• how and when stock is returned
• who pays for delivery/handling costs
• what happens if goods can’t be located or are returned damaged

What Should A Consignment Agreement Include?

A consignment agreement isn’t just a “nice to have”. If you’re supplying stock without upfront payment, the contract is often your main protection if things go wrong.

While your agreement should be tailored to your goods and sales channel, here are the clauses that commonly matter most.

1. Goods, Inventory, And Delivery Rules

Your agreement should clearly describe:

• what goods are being consigned (including SKUs, descriptions, photos, or an inventory schedule)
• quantity, condition, and packaging requirements
• delivery dates, delivery address, and who pays freight
• who is responsible for stock counts and stocktake processes

In 2026, it’s also increasingly common to include rules about inventory systems (for example, shared spreadsheets, POS integrations, barcode scanning, and audit rights).

2. Ownership And Risk (Loss, Damage, Insurance)

This is one of the most important parts of consignment.

Typically, you want it documented that:

• you retain title/ownership to the goods until they are sold to a customer
• the consignee must store and handle the goods with appropriate care
• the consignee is responsible for loss or damage (or, if you agree otherwise, it’s clearly defined)
• insurance requirements apply (for example, public liability, theft cover, or product-specific insurance)

Don’t assume “common sense” will settle this later. If a flood, theft, or accidental damage occurs, both parties will often think the other should wear the loss unless the contract clearly allocates risk.

3. Pricing, Discounting, And Promotions

Your agreement should cover:

• recommended retail price (RRP) and whether the consignee can change it
• discounting rules (whether allowed, and if so, with whose approval)
• bundling rules (for example, whether your product can be sold as part of a bundle)
• marketing obligations and who pays marketing costs

If the consignee advertises or displays prices, accuracy matters. Pricing mistakes can lead to customer disputes and potential issues under advertised price laws.

4. Commission, Fees, And Payment Timing

This section should be very specific. It usually includes:

• commission rate (percentage) or fixed fee (and whether it includes GST)
• when commission is deducted (for example, only after a sale is finalised)
• when you get paid (for example, monthly, within 7 days after end of month)
• how payments are made and what reporting must be provided with payments
• what happens if the customer pays via instalments, buy-now-pay-later, or delayed settlement

It can also be smart to clarify if the consignee can deduct other costs (like transaction fees, packaging, postage, or returns handling). If you don’t define this, those “small deductions” can add up quickly.

5. Refunds, Returns, And Customer Complaints

In practice, customers will usually return goods to the place they bought them - which may be the consignee’s store or online platform.

Your agreement should spell out:

• who is responsible for processing returns and refunds
• who bears the cost of refunds (especially if the consignee already paid you)
• how “faulty” or “not as described” claims are handled
• whether returned goods go back into consignment stock, are returned to you, or written off

Because most consignment sales involve consumer buyers, you should also ensure the arrangement supports compliance with Australian Consumer Law (ACL) and avoids misleading claims, including issues around misleading or deceptive conduct.

6. Term, Termination, And What Happens Next

Your agreement should cover:

• the consignment period (fixed term or ongoing)
• termination rights (for convenience, breach, insolvency, non-payment)
• how quickly unsold stock must be returned after termination
• what happens to sales that occur around termination (for example, if an order was placed but not fulfilled)

If your stock is seasonal or time-sensitive, you may also want “end-of-season” rules (for example, price reductions with your approval, or early return rights).

7. Online Sales Terms (If The Goods Are Sold Through A Website)

If your consignee sells online (through their own website or marketplace), make sure the agreement matches how online selling actually works, including shipping, delivery timeframes, and customer communications.

Often, consignment businesses pair the arrangement with their own website Terms and Conditions, so customers know the rules of purchase, delivery and returns.

8. Brand, IP, And How Your Products Are Represented

Consignment is not just a sales channel - it’s brand exposure.

Your agreement can include rules around:

• how your brand name and product descriptions are used
• photo usage (and whether the consignee can create new content)
• where the goods can be sold (in-store only, online only, specific platforms only)
• territory or exclusivity (if you agree to it)

If you’re building a recognisable brand, it’s also worth protecting your name and logo with trade marks so you can control how your branding is used over time.

Key Legal Risks And Compliance Issues To Watch In 2026

A consignment arrangement can be commercially sensible, but it comes with legal risk if you rely on handshake understandings.

Here are some of the main issues we typically want you to think about before you consign valuable stock.

Ownership Doesn’t Always Protect You If The Consignee Becomes Insolvent

Many business owners assume: “I still own the goods, so I can just collect them if the consignee goes under.”

In reality, insolvency situations can get complicated quickly. If the consignee has mixed stock, poor inventory records, or the arrangement isn’t documented clearly, you may face delays or disputes about what stock is yours.

This is one reason a detailed agreement (with clear stock schedules, audit rights, and return obligations) can be so important.

Consumer Law Still Matters (Even If You’re Not The One Selling)

If your products are being sold to consumers, the ACL will usually be relevant to the transaction.

From a practical perspective, your consignment agreement should ensure the consignee does not:

• make inaccurate claims about the goods
• misstate pricing, discounts, or availability
• refuse valid refunds where consumer guarantees apply

These issues aren’t just legal risks - they can become reputation risks for your brand.

Payment Disputes Are Common Without Strong Reporting And Audit Rights

Consignment can break down when you don’t have visibility. If you can’t verify what sold, when it sold, and whether discounts were applied properly, it becomes very hard to enforce payment.

Many well-run consignment agreements include:

• regular reporting obligations
• access to sales data (where appropriate)
• stocktake and reconciliation processes
• audit rights (especially for higher-value goods)

If you’re negotiating terms and want to tighten them without escalating conflict, a structured contract review can help you understand what’s missing and what to push for.

Data And Online Selling Can Trigger Extra Obligations

If consignment sales happen online, personal information might be collected (names, addresses, emails, payment details). That can bring privacy compliance into the picture.

Even where the consignee is the one collecting the data, it’s worth ensuring your arrangement reflects who does what, especially if you will receive customer details for warranty purposes, marketing, or fulfilment.

Consignment Vs Wholesale: Which One Should You Choose?

If you’re deciding between consignment and wholesale, the “right” answer usually depends on your risk tolerance, cash flow needs, and how much control you want over pricing and brand presentation.

Consignment Can Work Well If You Want Market Access With Lower Upfront Commitment

Consignment may suit you if:

• you want to place products in multiple retail locations without offering deep wholesale discounts
• you’re launching a new product and want to test demand
• your goods are premium or unique and you want tighter control over pricing

The trade-off is that you’re carrying more risk, especially around slow-moving stock and payment timing.

Wholesale Can Be Better If You Need Predictable Cash Flow

Wholesale may suit you if:

• you want to be paid upfront (or on clear invoice terms)
• you prefer simple supply-and-resale relationships
• you can absorb a wholesale margin and still be profitable

The trade-off is that you usually give up more control over retail price and how products are marketed (unless you negotiate protections).

A Hybrid Approach Is Also Common

Some businesses do a mix, for example:

• consignment with premium retailers or showrooms (for brand positioning)
• wholesale for volume channels
• direct-to-consumer online sales through your own site

If your business uses multiple channels, it becomes even more important that each channel’s contract terms don’t conflict (for example, exclusivity promises, pricing rules, and return rights).

Key Takeaways

• A consignment agreement is a contract where you supply goods to be sold by another party, and you typically retain ownership until the goods are sold.
• Consignment can be a smart way to expand your sales channels, but it carries real risk if payment timing, reporting, and stock responsibility aren’t clear.
• Strong clauses around inventory, ownership, risk of loss/damage, commission, and payment reporting are critical to preventing disputes.
• Refunds, returns, and product claims should be clearly allocated between consignor and consignee so the arrangement works smoothly in practice.
• Compliance issues (including Australian Consumer Law and accurate pricing representations) can impact both legal risk and your brand reputation.
• If you’re unsure whether consignment or wholesale is better for your business, the “best” option usually comes down to your cash flow needs and how much control you want over your products.

If you’d like help putting a consignment arrangement in place (or reviewing one you’ve been asked to sign), reach out to Sprintlaw at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.