To fill out a consignment agreement, work through it in order: name the parties exactly as they appear on legal documents, describe every item in enough detail to identify it later, set the commission split and payment timing, state who bears the risk of loss, lock in a termination and return process, and sign. If the goods are worth $1,000 or more at delivery, file a UCC-1 financing statement before the consignee takes possession — that one step is what separates a contract that holds up in bankruptcy court from one that doesn’t.
Get the Party Names and Addresses Right
Open the agreement with the full legal name of each party. For an individual, use the name on a driver’s license or passport. For a business, use the exact name on the entity’s formation documents: articles of incorporation, an LLC operating agreement, or a DBA registration. A mismatch between the contract name and the legal entity creates enforcement problems later. Under each name, add a mailing address where legal notices and payment checks should go.
Describe Every Item Specifically
Describe each consigned item in enough detail that a stranger could identify it. For clothing or accessories, that means brand, size, color, fabric, and condition. For electronics or equipment, include model numbers, serial numbers, and any visible wear. For artwork, note the medium, dimensions, artist, and title. Vague descriptions like “assorted jewelry” invite disputes. If you can’t prove which ring was yours, you can’t demand it back.
For more than a handful of items, use a separate inventory schedule rather than listing everything in the body of the contract. Label it “Exhibit A” or “Schedule 1” and reference it with language like “the goods described in the attached Exhibit A.” Each line should carry a description, quantity, condition, and the agreed-upon retail price or minimum acceptable price. When you deliver more inventory later, add Exhibit B rather than rewriting the contract, and have both parties initial and date each new schedule so there’s no ambiguity about when those goods entered the consignee’s possession.
Write In the Clauses That Actually Protect You
Title Retention
The single most important clause states that you still own the goods. Without it, a court could treat the arrangement as an outright sale. The clause should say plainly that ownership remains with the consignor at all times and transfers only to the end buyer at the moment of purchase. The consignee holds the goods as a bailee — a custodian with permission to sell — and never acquires ownership.
This matters most if the consignee goes bankrupt. Under UCC Article 9, consigned goods in the consignee’s possession can be treated as the consignee’s own inventory by creditors and a bankruptcy trustee unless the consignor has taken extra steps to protect their interest.1Legal Information Institute. UCC 2-326 Sale on Approval and Sale or Return; Consignment Sales Those steps are the UCC-1 filing described below.
Commission and Payment Timing
Write the commission as a specific percentage or dollar amount, not a reference to “industry standard.” A 60/40 split favoring the consignor is common in retail consignment; art galleries routinely take 50 percent of the sale price.2Investopedia. Consignment Explained: How It Works and Its Benefits State whether the split is calculated on the gross sale price or the net price after discounts and returns.
Payment timing gets its own clause. Most agreements require the consignee to pay the consignor’s share within 15 to 30 days after a sale. State the payment method — check, direct deposit, or electronic transfer — and add a late-payment provision so the consignee has a reason to pay on time. Require an itemized sales report with each payment showing what sold, for how much, and when.
Duration and Markdowns
Set a clear consignment period. Thirty to 120 days is typical. Fast-moving retail items might warrant a 30-day window; fine art or antiques often need 90 days or longer. Spell out what happens when the clock runs out: unsold goods are returned, picked up, or the agreement renews automatically.
If the agreement includes a markdown clause letting the consignee cut prices after items sit unsold, cap the maximum reduction or require written approval before any price change. A minimum acceptable price written into the inventory schedule serves the same purpose.
Risk of Loss and Insurance
State explicitly which party bears the risk if goods are lost, stolen, damaged, or destroyed while in the consignee’s hands. In most consignment contracts the consignee carries that risk because they control the premises.
Back the clause up with an insurance requirement. The consignee should carry commercial property insurance that covers consigned inventory, not just the consignee’s own stock. Specify a minimum coverage amount (often the total retail value on the inventory schedule), name the consignor as an additional insured or loss payee, and require a certificate of insurance before the consignee takes possession. Without this, a consignor may find after a fire or theft that the consignee’s policy excludes property they don’t own.
File a UCC-1 Before the Goods Are Delivered
A title-retention clause protects you against the consignee. A UCC-1 financing statement protects you against the consignee’s creditors. Under UCC Article 9, a qualifying consignment is treated as a secured transaction, and your interest must be perfected — made public — to have priority.3Legal Information Institute. UCC 9-102 Definitions and Index of Definitions Skip this and a bankruptcy trustee can sweep your goods into the estate and sell them to pay the consignee’s debts.
Article 9 applies when the goods are worth at least $1,000 at delivery, the consignee operates under a name other than the consignor’s, the consignee is not an auctioneer, and the consignee is not generally known by its creditors to be substantially engaged in selling other people’s goods.3Legal Information Institute. UCC 9-102 Definitions and Index of Definitions If your arrangement meets those criteria, file a UCC-1 with the secretary of state’s office in the state where the consignee is organized (for a business) or lives (for an individual). Most states accept online filings, and the fee generally runs $10 to $25.
Filing gives you priority over later creditors. If the consignee already has a lender with a blanket lien on its inventory, you need two more steps to beat that lender: perfect your interest before the consignee receives the goods, and send written notice to the existing lienholder describing the consigned goods, with that notice reaching the lienholder before the goods ship.4Legal Information Institute. UCC 9-324 Priority of Purchase-Money Security Interests The notice step is the single most common mistake consignors make. They file the UCC-1, assume they’re protected, and discover later that the consignee’s bank had priority the whole time.
Termination and Return of Unsold Goods
Include a termination clause that lets either party end the arrangement with written notice, usually 10 to 30 days. Say that all unsold goods must be returned within a set period after termination, and state who pays for return shipping or pickup. Some commercial consignment agreements treat any goods not returned within the stated window as purchased by the consignee at the agreed price, with payment due immediately — a strong incentive for the consignee to get your inventory back on schedule.5Securities and Exchange Commission. Consignment Agreement
Address termination for cause separately. If the consignee stops paying, loses a business license, or files for bankruptcy, a shorter notice period (as little as two business days) is appropriate. If the consignee’s location becomes inaccessible because of a lease termination or legal dispute, the agreement should let the consignor retrieve goods immediately.
Who Handles Taxes
Consignment sales create tax obligations for both parties, and the agreement should say who handles what. In most states the consignee, as the party making the retail sale, is responsible for collecting sales tax from the end buyer and remitting it to the state. Put that in writing. Some states hold both parties jointly liable for uncollected sales tax, which means the consignor can get a tax bill if the consignee doesn’t do their job.
On the federal side, consignment proceeds count as income. If the consignee processes payments through a payment app, online marketplace, or credit card processor, the consignor may receive a Form 1099-K. The IRS has been phasing in a lower reporting threshold for third-party settlement organizations; check the current threshold at irs.gov before filing season, as it has changed several times in recent years.6Internal Revenue Service. Understanding Your Form 1099-K Whether or not a 1099-K arrives, the consignor reports consignment income on their return. The consignee reports only the commission, not the full sale price.
Dispute Resolution, Governing Law, and Venue
Tell both parties what to do when something goes wrong before it goes wrong. The two common approaches are mediation, where a neutral third party helps you negotiate, and binding arbitration, where a neutral third party decides the outcome and both sides agree to accept it. Arbitration is faster and cheaper than a lawsuit but limits appeal rights.
Whichever method you choose, specify the state whose laws govern the agreement and the city or county where any legal proceedings will take place. If the consignor is in Oregon and the consignee is in Georgia, neither party wants to find out after a dispute that they have to litigate across the country.
Signing and Delivery
Both parties sign and date the agreement and every attached exhibit or schedule. Wet-ink signatures work, and so do electronic signatures. The Electronic Signatures in Global and National Commerce Act provides that a contract cannot be denied legal effect solely because it was signed electronically.7Office of the Law Revision Counsel. 15 USC 7001 General Rule of Validity Platforms like DocuSign and Adobe Sign create a timestamped audit trail that can be stronger evidence than a pen signature if authenticity is ever challenged.
Each party keeps an original or high-quality copy of the full executed agreement, including every schedule and exhibit. The consignor should also keep timestamped photographs of each item in the condition it was delivered. At the handoff, deliver the goods to the consignee’s location, have someone at the receiving end sign a delivery receipt that references the inventory schedule, and keep that receipt with your copy of the contract. The consignment period begins on the delivery date unless the agreement says otherwise.