what is consignment stock
What is consignment stock?
Consignment stock is inventory that is held by one business but still owned by another until it is sold or used. In practice, the supplier keeps ownership, and the customer only pays when the stock moves out of inventory.
[1][5][6]Quick Scoop
It is a common supply-chain setup for retailers, wholesalers, and manufacturers who want to reduce upfront cash outlay and avoid tying up capital in stock. The arrangement also helps suppliers place products closer to demand while keeping control over ownership until sale.
[3][9][1]How it works
- The supplier sends goods to the customer or warehouse.
- The customer stores, displays, or uses the goods.
- Ownership stays with the supplier until a sale or agreed consumption event happens.
- Only then does the customer pay for the sold units. [5][9][1]
Why businesses use it
- Lower upfront cost.
- Reduced inventory risk for the customer.
- Better cash flow.
- More flexible replenishment and faster response to demand changes. [2][7][10][3]
Simple example
A retailer receives 100 units from a supplier on consignment. The retailer stores them and sells 30 units to customers. The retailer then pays only for those 30 units, while the remaining 70 units still belong to the supplier.
[9][5]Watch-outs
- Ownership terms must be clear.
- Stock counts and shrinkage need tight tracking.
- Replenishment rules should be defined in advance.
- Accounting treatment may differ from normal stock purchases. [4][7][8]
| Aspect | Consignment stock | Regular stock purchase |
|---|---|---|
| Ownership | Supplier keeps ownership until sale. | [6][1]Buyer owns stock after purchase. |
| Payment timing | Paid when items are sold or used. | [5][9]Paid upfront or on delivery. |
| Cash flow | Less capital tied up. | [7][3]More capital tied up in inventory. |
TL;DR: consignment stock means the goods are physically with the customer, but the supplier still owns them until they are sold.
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