Meaning of Consignment: When the owner of goods or principle sends goods to his agent on this basis that goods will be sold by the agent and he will be entitled to get commission as remuneration at a certain rate on sale of goods. This procedure is known as consignment, ownership of goods remains with the consignor. Therefore, he enjoys the whole amount of profit and bears all risks, expenses and losses regarding consignment.
Commission : Commission is the remuneration paid by the consignor to the consignee for the services rendered to the former for selling the consigned goods. Three types of commission can be provided by the consignor to the consignee, as per the agreement, either simultaneously or in isolation.
They are:
(i) Ordinary Commission : The term commission simply denotes ordinary commission. It is based on fixed percentage of the gross sales proceeds made by the consignee. It is given by the consignor regardless of whether the consignee is making credit sales or not. This type of commission does not give any protection to the consignor from bad debts and is provided on total sales.
(ii) Delcredere Commission: To increase the sale and to encourage the consignee to make credit sales, the consignor provides an additional commission generally known as delcredere Commission. This additional commission when provided to the consignee gives a protection to the consignor against bad debts. In other words, after providing the delcredere commission bad debts is no more the loss of the consignor. It is calculated on total sales unless there is any agreement between the consignor and the consignee to provide it on credit sales only.
(iii) Overriding Commission: It is an extra commission allowed by the consignor to the consignee to promote sales at higher price than specified or to encourage the consignee to put hard work in introducing new product in the market. Depending on the agreement it is calculated on total sales or on the difference between actual sales and sales at invoice price or any specified price.
