Lives and Livelihoods

Consignment:

Shipment on consignment has much in common with open account shipment. The basis of consignment is that the exporter retains title to the goods but agrees that payment will not be required until the goods have been sold in the country of import. The method has a competitive advantage in that the exporter’s product is actually placed in the foreign market without loss of title, but it also involves considerable risk.

Until the goods are sold, the consignee may return them at any time, without any liability and at the seller’s expense. There may be difficulty in ensuring that the consignee observes faithfully the terms of the consignment agreement. The exporter’s assets may be built up abroad to a dangerously high degree, outside his control and subject to political, exchange and even climatic risks.

In this method also there is no bill of exchange involved, so again the seller is not protected against default. Shipment on consignment, then, should only be made when the exporter fully understands the credit and other risks involved, and should probably be limited to stable countries and where the consignee is, on the basis of past performance, a proved and trusted agent. Financing on consignment is provided entirely by the exporter and may be subject to high interest rates