Contractually speaking, the consignor and consignee can agree in writing to a variety of mutually advantageous measures. For example, you might agree that the merchandise will be placed in the wholesale or retail business where it is exposed to an estimated 50 percent of foot traffic that enters the store.
Also, you should agree as to the exact commission to be awarded to the consignee upon sale of the merchandise. The length of time (days, weeks, etc.) which the consignee will make payments for goods sold should be considered.
Agreement concerning delivery and pick-up of the merchandise might be included, as well as conditions of storage of any merchandise that is not on display, particularly perishable merchandise. Your contractual agreement might specify that you will be paid for "inventory sold", when Inventory Delivered Less Inventory Collected Equals Inventory Sold. Yet, the formula for payment noted above assumes that all merchandise will be either sold or claimed by the consignor and completely rules out the possibility of disappearance of the merchandise from the sales floor. Since shopper damage and shop lifting are sobering realities of doing business, it is wise to consider them and to plan for their occurrence beforehand.
The merchandise legally belongs to the consignor in a consignment sale and liability for any loss is still the consignor's problem. Some consignees may be willing to share the responsibility involved in loss due to shop lifting if the issue is handled tactfully.
In some cases, the consignee will assume responsibility for damaged goods. When this is the case, you, the manufacturer, will suffer no loss. However, such cases are rare. At best, you can expect a sharing of the loss with the consignee.
When you assume part or all of the loss, ask for and keep the damaged goods for your records. A consignee could claim that some of your merchandise was damaged when in fact the consignee sold it and pocketed the money.
Also, consider damage caused by sun rays that fade colors and make some merchandise unfit for sale.