What Is A Consignment Agreement? (2026 Updated)

If you’re selling products through another business (like a boutique, salon, gallery, or online marketplace seller), a consignment arrangement can be a smart way to grow without needing your own shopfront.

But before you hand over your stock, it’s worth getting clear on the legal basics. A consignment agreement sets out who owns the goods, who’s responsible for them, how you get paid, and what happens if something goes wrong.

This guide is updated for current New Zealand business conditions and the way consignment is commonly used today (including online and multi-channel sales). We’ll break it down in plain English so you can feel confident you’re protected from day one.

What Is A Consignment Agreement?

A consignment agreement is a contract where one party (the consignor) supplies goods to another party (the consignee) to sell on their behalf.

The key feature is this: the consignor usually keeps ownership of the goods until they’re sold.

That’s different from a normal wholesale arrangement, where the retailer buys the goods upfront and becomes the owner straight away.

Who Are The Parties?

• Consignor: the owner/supplier of the goods (often the maker, brand owner, or importer).
• Consignee: the business that displays/markets/sells the goods (often the retailer, gallery, salon, or online seller).

How Does Consignment Work In Practice?

A typical consignment setup looks like this:

1. You provide stock to the consignee (often without upfront payment).
2. The consignee sells the stock to end customers.
3. The consignee keeps an agreed commission (or margin) and pays you the balance.
4. Unsold stock is returned to you (or handled according to your agreement).

This can be great for testing a new product or entering a new market. But it also creates “grey zones” if you don’t have a written agreement-like disputes about damaged stock, late payments, discounts, or whether the consignee can move your products between stores.

Consignment Agreement Vs Wholesale (And Other Common Mix-Ups)

Consignment is often confused with wholesale, distribution, and agency arrangements. Getting the label wrong isn’t just semantics-it can affect ownership, risk, tax handling, and what happens if the consignee’s business runs into trouble.

Consignment Vs Wholesale

• Consignment: you usually keep ownership until the goods are sold; you get paid after sale; the consignee earns a commission or fee.
• Wholesale: the retailer buys stock upfront (or on invoice terms), then sells it as their own stock; you’ve already “exited” ownership when the sale to the retailer happens.

If you’re doing wholesale-style supply (fixed pricing, purchase orders, minimum quantities), you may be better protected using business Terms of Trade rather than a consignment agreement.

Consignment Vs Distribution

In a distribution model, a distributor often buys and resells products (sometimes with marketing obligations and territory rules). In consignment, the “seller” is usually selling on your behalf, not purchasing inventory for resale.

If your arrangement is closer to a long-term channel partnership, a Distribution Agreement may be more appropriate.

Consignment Vs Agency

Consignment can overlap with agency concepts because the consignee is selling for you. The difference is that consignment is specifically centred on goods and inventory being held by the consignee, with rules about possession, returns, and reporting.

If you want the consignee to act as a true sales agent (including negotiating with customers and forming contracts in your name), you may also need to think about broader agency-style terms.

Why Should You Have A Written Consignment Agreement?

A consignment arrangement might start casually-especially if you’re supplying stock to a local retailer you know. But as soon as money, inventory, and customers are involved, misunderstandings happen quickly.

A written consignment agreement helps you:

• Keep ownership clear (so your stock isn’t treated like the consignee’s inventory).
• Set payment expectations (timing, reporting, deductions, and commission).
• Reduce disputes about discounts, refunds, returns, and damaged goods.
• Protect your brand by controlling how your products are displayed and marketed.
• Plan an exit if the relationship isn’t working (including returning stock and final reconciliation).

It also makes your business look more professional, which matters when you’re working with established retailers or scaling into multiple locations.

A Quick Reality Check: Possession Isn’t The Same As Ownership

One of the biggest risks in consignment is this: the consignee has physical possession of your goods, and from the outside, it can look like they own them.

If the consignee runs into financial trouble, you want your agreement to clearly support your position that the goods are still yours (and deal with what happens next). This is exactly the kind of “you don’t need it until you really need it” protection that a tailored contract provides.

What Should A Consignment Agreement Include?

There’s no one-size-fits-all consignment agreement. What you need depends on what you sell, how the consignee sells it (in-store vs online), and how much control you want over pricing and branding.

That said, most well-drafted consignment agreements should cover the following core terms.

1) The Goods And Delivery Process

• What goods are being consigned (including SKUs, sizes, colours, or unique identifiers).
• Delivery terms (who pays freight, packaging requirements, delivery timeframes).
• How stock is recorded (inventory lists, delivery dockets, regular reconciliations).

For higher-value goods, it’s also common to require the consignee to keep the goods separate from other stock and clearly labelled as consigned.

2) Ownership And Risk

This is the heart of the arrangement. Your agreement should be clear about:

• When ownership passes (typically, only when a sale to the end customer occurs).
• Who bears the risk of loss/damage while the goods are in the consignee’s possession.
• Security and handling standards (storage, security cameras, restricted access, etc.).

If you don’t spell this out, you can end up stuck arguing whether the consignee has to pay you for items that were stolen, damaged, or “misplaced”.

3) Price, Commission, And Payment Timing

Your agreement should set out the commercial deal in simple, enforceable terms:

• Retail price (or price range) and who controls pricing.
• Commission rate or service fee (including whether it applies to discounted sales).
• When you get paid (e.g. weekly, fortnightly, monthly) and how sales are reported.
• What deductions are allowed (e.g. payment processing fees, returns, packaging).

This is also where you deal with “what if” scenarios: What if the consignee runs a store-wide promotion? What if they issue store credit? What if they bundle your product with other items?

4) Marketing, Brand Use, And Online Sales

Consignment often involves the consignee using your name, images, and branding to sell. Your agreement should cover:

• Where the goods can be sold (in-store only, online only, or both).
• Whether the consignee can list products on third-party platforms (and which ones).
• Brand guidelines (product descriptions, photography, placement, and presentation).
• IP permissions (what they can use, for what purpose, and for how long).

If you’re serious about brand protection, it’s worth thinking about trade marks too. If a reseller relationship breaks down, you want to be able to enforce your brand rights properly-having a Trade Mark is often a key part of that foundation.

5) Consumer Law Responsibilities (Refunds, Returns, And Complaints)

This part is commonly missed, but it matters a lot in New Zealand.

Even though the customer buys from the consignee, your agreement should clearly allocate who handles:

• Refunds, returns, and exchanges (and who bears the cost).
• Defective goods claims.
• Customer complaints and escalation processes.

In NZ, consumer-facing sales are heavily shaped by the Consumer Guarantees Act 1993 and the Fair Trading Act 1986. In plain terms, that means you need to be careful about product descriptions, advertising claims, and what happens if goods aren’t of acceptable quality.

It’s not always obvious how liability falls between consignor and consignee in real life-so the best approach is to set expectations upfront and align your agreement with how you want issues handled in practice.

6) Stocktake, Reporting, And Audit Rights

Because your goods are sitting in someone else’s premises (or warehouse), you need transparency.

A good consignment agreement usually includes:

• Sales reporting requirements (frequency and format).
• Stocktake requirements and reconciliation timeframes.
• Your right to inspect records or conduct audits (reasonably and with notice).

This isn’t about distrust-it’s about having a clean process so both sides can run the relationship smoothly.

7) Term, Termination, And What Happens To Unsold Stock

Consignment relationships can change quickly. Maybe the store changes direction, your product range evolves, or the numbers just don’t work.

Make sure your agreement covers:

• How long the agreement runs (fixed term or ongoing).
• How either party can end the arrangement (notice periods, immediate termination events).
• What happens to unsold stock (return process, timing, condition requirements).
• Final accounting and payment after termination.

If you leave this vague, you might find your stock is stuck in limbo, or you’re chasing final payments without clear timeframes.

Do You Need To Comply With Any Laws When Selling On Consignment?

Yes-consignment is still “business as usual” from a legal compliance perspective. The difference is that you’re working through another business, so you need to be extra clear about who does what.

Fair Trading Act 1986

The Fair Trading Act 1986 broadly prohibits misleading or deceptive conduct in trade. That applies to things like:

• Product claims (e.g. “100% organic”, “made in NZ”, “waterproof”, “medical grade”).
• Before-and-after marketing images.
• Pricing representations and “discount” claims.

Even if the consignee writes the product listing, your brand can still be affected by how products are described. This is why it’s smart to set brand and marketing rules in your consignment agreement.

Consumer Guarantees Act 1993

The Consumer Guarantees Act 1993 provides automatic guarantees for consumers (when goods are sold to consumers in NZ). If the goods are faulty or not as described, remedies can include repair, replacement, or refund depending on the issue.

In a consignment context, disputes can arise about who “wears” the cost of those remedies. Your agreement should allocate responsibility clearly (and match your commercial reality).

Privacy Act 2020 (If Data Is Shared)

Sometimes consignment includes sharing customer information-for example, warranty registrations, fulfilment details for online orders, or customer support follow-ups.

If personal information is being collected or shared, both parties need to think about compliance with the Privacy Act 2020. At a practical level, that usually means having a clear Privacy Policy and agreed processes for handling customer data securely.

Payment And Record-Keeping (Practical Compliance)

While this article isn’t tax advice, it’s worth noting that consignment affects how sales are recorded and reported. You’ll want processes that make it easy to reconcile:

• What was delivered
• What was sold
• What is still on hand
• What commission is payable
• What is owed and when

Getting this right early prevents disputes later-especially if you’re consigning to multiple locations or selling across both physical and online channels.

Common Consignment Risks (And How To Avoid Them)

Consignment can work really well, but there are a few repeat issues we see when agreements are informal or unclear. The good news is that most of these risks are manageable with the right drafting.

“They Discounted My Products Without Asking”

If pricing control matters to you, your agreement should clearly set out:

• Who can approve discounts
• How promotions are handled
• Whether commission is calculated on the discounted price or the original price

“I’m Not Getting Sales Reports (Or Payments) On Time”

Your agreement should include reporting frequency, payment deadlines, and what happens if payments are late (including interest or suspension rights where appropriate).

“My Stock Was Damaged Or Went Missing”

This is where “risk while in possession” clauses matter. It can also be worth addressing insurance-who maintains it, and whether the consignee has to provide evidence of cover.

“We Disagree On Returns And Refunds”

Returns are a classic flashpoint, especially where:

• The consignee offers “change of mind” returns as a store policy
• The product is seasonal or perishable
• There are hygiene concerns (e.g. beauty products)

Your contract should separate what the law requires (consumer guarantees) from optional store policies (change of mind), and allocate costs accordingly.

“They Want To End The Arrangement, But My Stock Is Still There”

Termination needs a clear exit process-how stock is returned, timeframes, condition checks, and final reconciliation. Without that, you can lose weeks (or months) chasing stock and payments.

If you’re supplying goods under a broader commercial arrangement (for example, a service provider relationship as well as product supply), it may also be worth documenting the overall relationship under a more general Service Agreement alongside the consignment terms.

Key Takeaways

• A consignment agreement is a contract where you supply goods to be sold by another business, and you usually keep ownership until the goods are sold.
• Consignment is different from wholesale and distribution arrangements, so it’s important to document the relationship using the right type of agreement.
• A well-drafted consignment agreement should cover ownership and risk, pricing and commission, payment timing, returns/refunds, reporting, and what happens to unsold stock.
• Consumer law still applies, including the Fair Trading Act 1986 and Consumer Guarantees Act 1993, so refunds, faulty goods, and advertising claims should be handled carefully.
• If customer data is shared as part of the process (especially for online orders), you’ll likely need a clear Privacy Policy and agreed processes to comply with the Privacy Act 2020.
• Consignment can be a great growth strategy, but it works best when responsibilities are clear and your legal foundations are set up properly from day one.

If you’d like help drafting or reviewing a consignment agreement (or working out whether consignment is the right model for your business), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.