What NZ Retailers Should Include In A Consignment Agreement

Can you sell goods on consignment in New Zealand without ending up in an argument about who owns the stock, who gets paid and what happens to unsold items?

Yes, you can - and it can work really well when the terms are clear from day one. Consignment is often a smart way for a maker to get products into stores, or for a retailer to test a new range without paying for stock upfront.

The tricky part is that everyone can have a different idea of what consignment means. A short, tailored agreement helps you pin down the details that usually cause problems: title, loss, markdowns, GST, payment timing, returns and PPSR protection.

Do You Need A Written Consignment Agreement In NZ?

Yes, you should have a written consignment agreement if goods are changing hands but ownership isn't meant to transfer straight away.

A consignment arrangement usually means one business supplies goods to another business to sell. The retailer displays and sells the goods, then pays the supplier after a sale is made, often keeping a commission or margin.

Like any supplier agreement, that sounds simple, but it leaves a lot of room for misunderstanding. For example, the supplier may think they still own all unsold stock, while the retailer may think they can discount slow-moving items to clear space.

A written agreement gives both sides a shared set of rules. It should cover:

• who owns the goods while they're in the store or warehouse
• how sales will be recorded and reported
• when the supplier gets paid
• whether the retailer can mark down prices or run promotions
• who is responsible for stolen, damaged or missing stock
• what happens to faulty products and customer returns
• how unsold goods are collected, returned or disposed of

In New Zealand, your agreement will sit alongside laws that may affect the arrangement, including the Fair Trading Act 1986, Consumer Guarantees Act 1993, Goods and Services Tax Act 1985 and Personal Property Securities Act 1999. You don't need a long document, but you do need one that matches how your business actually works.

Templates can be a useful starting point, but they often miss the commercial details that matter most. A consignment agreement works best when it's tailored before you use it.

Who Owns The Goods While They Are On Consignment?

The supplier usually keeps ownership of the goods until they're sold, but your agreement needs to say this clearly.

This is called title. If you're the supplier, you'll usually want the agreement to say that title remains with you until the end customer buys the item and the retailer has accounted to you for the sale. If you're the retailer, you'll want the wording to be practical enough that you can display, promote and sell the goods in the ordinary course of business.

Ownership terms should also explain when risk passes. Title and risk aren't always the same thing. For example, the supplier might own the goods, but the retailer may still be responsible if stock is stolen from the shop floor or damaged while in its care.

A Simple Example

Say Hana makes ceramic mugs in Nelson and places 100 mugs with a Wellington gift store on consignment. Each mug retails for $50 including GST.

Hana and the store agree that Hana keeps ownership of each mug until a customer buys it. The store can sell the mugs at the agreed price, but it can't use them for another purpose, give them away, or include them in a clearance sale without Hana's written approval.

After one month, 30 mugs have sold, 5 are chipped and 65 remain unsold. Without clear terms, Hana and the store may disagree about whether the store must pay for the chipped mugs, whether the 65 unsold mugs can be returned and whether any discounting is allowed. With clear title and risk clauses, the outcome is much easier to work through.

Your agreement should also say the retailer must keep the goods identifiable where practical, maintain accurate records and not claim the goods as its own stock in a way that conflicts with the supplier's ownership rights.

What Payment Terms Should A Retail Consignment Agreement Include?

Your payment terms should state exactly how the supplier is paid, when payment is due and what records the retailer must provide.

Consignment disputes often start because the parties have different expectations about payment timing. The supplier may expect payment as soon as an item sells. The retailer may expect to pay monthly, after deducting commission, card fees or freight.

Good supplier consignment terms usually cover:

• sale price: the recommended or fixed retail price, and whether prices include GST
• retailer margin or commission: the percentage or dollar amount the retailer keeps
• payment cycle: weekly, fortnightly, monthly or another agreed period
• sales reports: what the retailer must report, such as units sold, discounts, refunds and stock on hand
• deductions: whether the retailer can deduct merchant fees, shipping, packaging or returns
• taxable supply information and records: who provides taxable supply information or invoices, what information they must include, and what records each party must keep
• late payment: what happens if the retailer doesn't pay on time

Worked Payment Example

Hana's mugs sell for $50 each including GST. The store keeps a 35% commission and pays Hana monthly for items sold.

If 30 mugs sell in March, total sales are $1,500 including GST. The store's commission is $525. Hana's gross payment is $975, subject to the GST treatment they have agreed and their tax positions.

If the store also wants to deduct $45 in card fees, that should be written into the agreement. If it's not, Hana may expect the full $975 and the store may assume it can deduct the fees. That's exactly the kind of small gap that can turn into an avoidable dispute.

GST and sale of goods terms can be especially easy to get wrong. Whether the retailer is selling as agent for the supplier, or buying and reselling in a different way, can affect taxable supply information and GST reporting. If either party is GST-registered, your payment clauses should line up with how your accountant expects the arrangement to be treated.

What Happens If Stock Is Lost, Damaged, Marked Down Or Unsold?

Your agreement should say who carries the risk for stock once it's delivered, and what happens if the stock doesn't sell.

This is where many consignment arrangements get messy. Stock can go missing. Customers can damage display items. A retailer might run a sale. A supplier may want unsold stock back quickly, while the retailer wants more time to sell it.

Loss And Damage

Your agreement should say whether the retailer is responsible for loss or damage while the goods are in its possession. If you're the supplier, you may want the retailer to pay for stock that's lost, stolen or damaged, except where the damage was due to a product defect or your own packaging.

If you're the retailer, you may want a more balanced approach. For example, you might accept responsibility for loss caused by your staff or poor storage, but not for inherent product faults or normal customer handling of display items.

It's also sensible to cover insurance. If the goods are valuable, the agreement should say whether the retailer must insure them, what risks the insurance should cover and whether the supplier can ask for proof of cover.

Markdowns And Promotions

A retailer shouldn't assume it can discount consigned goods whenever it wants. If the supplier's brand positioning matters, unexpected markdowns can be a real problem.

Your agreement can say:

• whether the retailer can reduce prices without approval
• the maximum discount allowed
• whether the supplier absorbs the discount or the retailer reduces its own margin
• how promotions, bundles and loyalty discounts are treated

Unsold Goods

Set a review date for unsold goods. For example, you might agree that stock is reviewed after 60 or 90 days, then either returned, extended for another period, discounted by agreement or moved to another location.

Your agreement should also say who pays return freight, how much notice is needed for collection and what happens if the supplier doesn't collect stock after being asked to do so.

Do You Need To Think About GST, Consumer Law And The PPSR?

Yes, consignment arrangements can raise GST, consumer law and Personal Property Securities Register issues, especially if the stock has meaningful value.

These aren't just technical points. They affect how you issue taxable supply information or invoices, who handles customer problems and whether the supplier's ownership claim is protected if the retailer becomes insolvent.

GST And Records

If you or the other party is GST-registered, make sure your agreement matches the way sales will be invoiced and reported. You should be clear about whether listed prices are GST-inclusive or GST-exclusive, who provides taxable supply information, what information it must include, and what sales records must be shared.

If the retailer is acting as the supplier's agent, a GST-registered agent may be able to provide taxable supply information on the principal's behalf if the GST rules are met. Your agreement should also say who keeps the required GST records, how long records are kept, and how quickly sales and return information must be provided.

Your accountant can help confirm the right treatment for your setup. The legal agreement should then reflect that treatment so the paperwork and the tax reporting don't pull in different directions.

Fair Trading Act And Consumer Guarantees Act

If goods are sold to consumers, the retailer still needs to comply with the Fair Trading Act 1986 and Consumer Guarantees Act 1993. You can't avoid consumer guarantees just because the goods are on consignment.

Your agreement should allocate practical responsibility for:

• product descriptions, claims and labelling
• faulty goods, refunds, repairs and replacements
• recalls or safety issues
• who communicates with the customer
• who bears the cost if the problem was caused by a product defect

For business-to-business supplies, parties can sometimes contract out of parts of the Consumer Guarantees Act and certain Fair Trading Act provisions, but only where the law allows it and the wording is fair and reasonable. That won't work for ordinary consumer sales.

PPSR Protection

The PPSR is worth considering where the supplier keeps title to goods held by a retailer. Under the Personal Property Securities Act 1999, some commercial consignments can be treated as security interests.

In practical terms, that means a supplier who doesn't register on the PPSR may struggle to recover goods if the retailer goes into liquidation or if another secured creditor has priority. A well-drafted retention of title clause is helpful, but it may not be enough on its own.

If you're placing valuable stock with another business, get advice on whether a PPSR financing statement should be registered before the goods are delivered. For inventory, timing can be critical if you want the strongest priority position.

Consignment Agreement Template: What To Include

A good consignment agreement template should give you a structure, but it shouldn't be used as a finished document without tailoring.

Here is a practical outline you can use to think through the terms you need. Each section should be adapted to your products, sales process, margins and risk position.

1. Parties: write the legal names, NZBNs if relevant, addresses and contact details for the supplier and retailer.
2. Products: describe the goods clearly, including SKUs, quantities, condition, packaging and any product standards.
3. Consignment Period: set the start date, review date and end date, plus any renewal process.
4. Delivery And Acceptance: say who delivers the stock, who pays freight and how the retailer confirms what was received.
5. Title And Risk: state who owns the goods, when title passes and who is responsible for loss or damage.
6. Pricing And Markdowns: list retail prices, GST treatment, discount rules and approval requirements for promotions.
7. Commission And Payment: set the retailer's margin or commission, payment dates, reporting obligations and permitted deductions.
8. GST And Stock Records: require taxable supply information, sales and inventory reports, and allow reasonable stock checks.
9. Customer Returns And Faults: explain who handles complaints, refunds, repairs, replacements and product defects.
10. Unsold Goods: explain when stock is returned, who pays return freight and what happens if stock isn't collected.
11. Insurance: state whether the retailer must insure the goods and what level of cover is required.
12. PPSR: include any required consent and cooperation for registration, if PPSR protection is needed.
13. Confidentiality And Brand Use: protect wholesale pricing, product information, photos and brand materials.
14. Termination: set out when either party can end the arrangement and what happens to stock and unpaid amounts.
15. Dispute Process: include a practical internal escalation process, without assuming court action will be the next step.

Try to avoid vague phrases like reasonable commission or payment after sale. They feel flexible at the time, but they're hard to enforce if the relationship breaks down. Use dates, percentages, dollar amounts and clear steps wherever you can.

If your goods are regulated, perishable, high value, branded, customised or sold online as well as in-store, your agreement will need extra detail. The same applies if you're supplying stock to multiple retailers and want consistent rules across your network.

Key Takeaways

• A consignment agreement helps you sell goods through another business while keeping clear rules around ownership, payment and returns.
• Title, risk and PPSR protection should be dealt with carefully, especially if the supplier wants to keep ownership until sale.
• Payment clauses should cover commission, GST, taxable supply information, sales reports, deductions and exact payment dates.
• Don't leave markdowns, damaged stock or unsold goods to a handshake. These are the issues most likely to cause tension later.
• Consumer law still applies when goods are sold to customers, so your agreement should say who handles faults, refunds and product claims.
• A template is only a starting point. Your agreement should be tailored to your products, sales model and risk level.

If you'd like help with consignment terms, payment and return clauses, PPSR considerations or a tailored agreement for your products, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.