Consignment Agreements Defined: Australian Business Essentials

Consignment can be a smart way to get your products into stores (or onto someone else’s online platform) without the buyer paying upfront. But it’s also a legal arrangement that needs careful drafting and the right protections from day one.

In a consignment agreement, you keep ownership of your goods while a retailer or distributor sells them on your behalf. This flexibility is great for testing new markets and managing cash flow, but it also creates risks around title, insurance, insolvency and payment that you’ll want to manage with clear terms and proper Personal Property Securities Register (PPSR) steps.

In this guide, we break down what a consignment agreement is in Australia, how it works in practice, the PPSA/PPSR issues that catch many businesses out, and the key clauses you’ll want to include to protect your position. We also answer common questions so you can approach consignment with confidence.

What Is A Consignment Agreement In Australia?

A consignment agreement is a contract between two parties:

• The consignor – the business that owns the goods.
• The consignee – the business that holds, markets and sells those goods to end customers.

Ownership of the goods stays with you (the consignor) until a sale to the end customer occurs. The consignee doesn’t buy the goods upfront. Instead, they display and sell them, then account to you for the proceeds less an agreed commission or fee.

Because this is an agency-style arrangement, the relationship is built on duties of care, proper record-keeping and clear authority to sell. If you’re new to agency concepts, it helps to understand the law of agency and how an agent’s authority and obligations work in day-to-day transactions.

In Australia, consignment frequently appears in retail, galleries, specialty goods, fashion, and even B2B distribution where suppliers want shelf presence without moving large volumes at once. When properly documented, it can reduce your upfront risk and help you scale without heavy warehousing or credit exposure to a buyer.

How Does Ownership, Risk And Payment Work?

Every consignment deal is a little different, but well-drafted agreements usually address the following areas in plain, practical terms.

Ownership (Title) And Authority To Sell

You retain title to all consigned goods until a valid sale to a customer. Your agreement should make this explicit and set out the consignee’s authority to sell on your behalf, including any limits on discounts, promotional pricing, or bundled offers.

Risk, Care And Insurance

Title and risk don’t have to move together. Many consignors keep title but require the consignee to assume risk while the goods are in their possession. Spell out who is responsible for loss, theft, shrinkage and damage, the required standard of storage and display, and who must hold insurance (and at what level). If goods are in transit, clarify who bears transit risk and which party arranges freight.

Pricing, Commission And Payment

State the recommended retail price (or pricing rules), the commission or margin the consignee earns on each sale, and any approved deductions (for example, agreed promotional costs). Your payment clause should cover the remittance cycle (e.g. weekly or monthly), the reporting format, and when funds are due after each sales period. Consider whether the consignee holds sale proceeds on trust for you until remitted.

Sales Reporting, Records And Audit

Accurate, timely reporting is critical. Require itemised sales reports, inventory counts, and access to point‑of‑sale data if appropriate. Include a right to inspect and audit records during business hours, with a clear process for reconciling discrepancies and recovering shortfalls.

Delivery, Acceptance And Returns

Outline how goods are ordered, delivered and accepted into consignment stock, including delivery notes and condition checks. If goods are defective or unsold after a set period, set procedures for return, replacement or disposal. Make sure this aligns with your obligations under the Australian Consumer Law when it comes to consumer guarantees and remedies, noting the general prohibition on misleading conduct in section 18.

Brand Use, Merchandising And Promotion

Give the consignee a limited licence to use your brand assets for merchandising and promotion, and set quality guidelines for displays, online listings, photography and advertising. This helps protect your brand reputation across different sites and stores.

Set-Off, Chargebacks And Disputes

It’s common for consignees to ask for set-off rights (deducting amounts they claim you owe them from the sales proceeds they remit). Manage this risk by clearly defining when set-off is permitted and capping any offsets. If set-off will apply, it’s worth understanding how set-off clauses typically operate so you can keep cash flow predictable.

Amending Your Deal As You Grow

Consignment relationships evolve. Include a simple variation process so changes to commission, reporting or stock levels can be made in writing. If you do need to update terms, follow good contract hygiene and be deliberate about how you vary a contract to avoid uncertainty.

PPSA And PPSR: Protecting Your Consignment Interest

This is the big legal issue many businesses underestimate. Under Australia’s Personal Property Securities Act (PPSA), a “commercial consignment” creates a security interest in the consigned goods (and sometimes their identifiable proceeds). To protect yourself, you typically need to perfect that interest by registering on the PPSR.

In simple terms: even though you still own the goods, the law can treat them like collateral once they’re in the consignee’s possession. If the consignee becomes insolvent and you haven’t perfected your interest, those goods can be grabbed by other creditors or a liquidator. Timely PPSR registration is what preserves your priority and helps you get your stock back.

When Registration Is Needed

• Most business-to-business consignments of goods for sale will meet the PPSA definition of a “commercial consignment”.
• Perfection is usually by PPSR registration. It’s best practice to register before delivering goods to the consignee so you are protected from day one.
• If goods are serial-numbered (e.g. motor vehicles or certain equipment), additional identification rules can apply on the PPSR.

Not registering can be a costly mistake. If the consignee becomes insolvent, you may lose rights to your own goods or sale proceeds against other secured creditors who registered first.

Practical PPSR Tips

• Include a PPSA clause in the agreement giving you the right to register your security interest and requiring the consignee to provide information you need for registration.
• Register against the correct legal entity name and ABN/ACN for the consignee, using accurate collateral descriptions.
• Set calendar reminders to renew registrations before they lapse.
• Keep delivery notes and stock records aligned with your PPSR registrations so you can quickly identify what’s yours if anything goes wrong.

If PPSR feels unfamiliar, it’s worth reading a plain-English overview of what the PPSR is and why it matters for your business. Consignment is one of the common scenarios where registration isn’t optional if you want robust protection.

Common Risks And How To Manage Them

Consignment offers flexibility, but it also introduces unique risks. The good news is most of these can be managed with careful drafting, solid processes and PPSR hygiene.

• Insolvency Of The Consignee: The consignee collapses owing you money while holding your stock. Mitigate by registering your commercial consignment interest on the PPSR before supply, holding sale proceeds on trust, tightening reporting cycles and setting solvency-triggered termination rights.
• Unidentified Or Mixed Goods: Stock gets mixed, relabelled or moved across sites, making it hard to trace. Use SKU-level schedules, labelling requirements, and mandatory inventory counts. Keep delivery and transfer notes in sync with reports.
• Loss, Damage Or Shrinkage: Agree on risk allocation, storage standards and insurance levels. Require prompt notification of incidents and specify who handles claims and excesses.
• Delayed Or Short Payments: Use clear remittance cycles, interest on late payments and rights to suspend supply. Limit broad set-off claims and ensure you can audit records and require top-ups of shortfalls promptly.
• Pricing And Discount Creep: Set a pricing framework and approval thresholds for discounts or promotions. Require evidence of authorised markdowns in sales reports.
• Consumer Law Exposure: Ensure product descriptions, warranties and refunds align with the Australian Consumer Law. If the consignee advertises your products, set standards that reduce the risk of false or misleading claims under section 18.
• Open-Ended Liability: Cap your exposure with appropriate exclusions and caps where lawful, and be familiar with how limitation of liability clauses work alongside mandatory consumer guarantees.

It’s also worth thinking about your broader contract suite. If you sell some lines outright and consign others, align your standard Business Terms with your consignment terms so there aren’t contradictory rights on things like retention of title, returns or marketing.

Key Clauses To Include In Your Consignment Agreement

A clear, comprehensive agreement is your first line of defence. At a minimum, most Australian consignment agreements will cover:

• Parties, Term And Territory: Who’s involved, where the consignee can sell, and how long the arrangement runs.
• Goods Schedule And Specifications: Product lists, SKUs, versions, serial numbers (if applicable), packaging and labelling standards.
• Delivery, Acceptance And Title: Delivery process, when goods are “accepted” into stock, and a statement that title remains with you until sale to the end customer.
• Risk And Insurance: Who carries risk while goods are in the consignee’s custody, required insurance types and minimum sums insured.
• PPSA/PPSR: A clause authorising PPSR registration, cooperation obligations (e.g. information provision), and acknowledgements about your security interest and proceeds.
• Pricing And Commission: Price lists, authority to discount, commission rates/margins, and how commission is calculated (incl. tax, shipping, promotions).
• Payment And Proceeds: Remittance timing, currency, trust wording for sale proceeds, interest on late payments, and rules around permitted deductions or set-off.
• Sales Reporting And Records: Report content and frequency, POS data access, inventory counts, reconciliation processes and audit rights.
• Marketing, Brand And IP: A limited licence to use your trade marks, content and images, with brand guidelines and take-down rights for non-compliant listings.
• Care, Storage And Recall: Handling standards, temperature or security requirements, recall cooperation and defect notification procedures.
• Returns, Unsold Stock And End-Of-Term: Timeframes and logistics for returning unsold goods, damaged goods handling, and final account reconciliation.
• Warranties And ACL Compliance: Allocation of responsibilities for customer guarantees, repairs or replacements, and product safety information.
• Confidentiality And Data: Protecting pricing, customer data and operational information.
• Indemnities And Liability Caps: Balanced indemnities and sensible limits, having regard to consumer law carve-outs and your overall risk profile; see how liability clauses typically operate.
• Default And Termination: Triggers such as non-payment, material breach, insolvency, change of control, and your rights to retake possession and stop supply.
• Dispute Resolution And Governing Law: A pragmatic process to resolve issues before they escalate, with Australian governing law and venue.
• Variation And Notices: Clear rules for written variations and how notices must be delivered.

Make sure the contract is actually formed and enforceable. That means clear offer, acceptance, consideration and intention to create legal relations. If you need a refresher on the basics, see how offer and acceptance work in Australian contract law.

If you want a head start, many businesses use a tailored Consignment Agreement that fits their products, reporting cycles and risk tolerance, rather than trying to retrofit a generic template.

Frequently Asked Questions

Is Consignment A Sale Or An Agency Relationship?

It’s primarily an agency relationship. You, as consignor, authorise the consignee to sell your goods on your behalf. Title stays with you until the end customer buys the goods. That agency framework comes with duties and responsibilities, which is why understanding the law of agency helps when setting parameters around pricing, returns and marketing.

Do I Really Need A PPSR Registration If I Still “Own” The Goods?

In most commercial consignments, yes. Under the PPSA, a “commercial consignment” creates a security interest that should be perfected (usually by PPSR registration). If you don’t register and the consignee becomes insolvent, you may lose priority to your own goods or the proceeds of sale. In practice, registering before delivery is the safest approach, and keeping your registrations current is essential. For an overview, see what the PPSR is.

How Are Taxes Handled On Consignment Sales?

The retail sale to the end customer attracts GST in the usual way if the relevant party is registered and the goods are taxable. Your agreement should set out whether the consignee issues tax invoices for sales and how commission is treated for GST. Speak with your accountant about your specific GST reporting position so your contract language matches your tax treatment.

Do We Need A Written Contract?

Absolutely. A written agreement avoids disputes about who owns what, how commission is calculated, who carries risk and what happens to unsold stock. It also ensures you include critical PPSA and PPSR wording and that the contract satisfies formation requirements like offer and acceptance. A tailored Consignment Agreement is a much safer bet than a template borrowed from another industry.

Can We Start Small And Adjust Later?

Yes. Many businesses pilot consignment with a limited product list and short payment cycles, then expand. Just make sure your agreement includes a simple variation mechanism and that any changes to core terms are documented in writing so they’re enforceable.

Key Takeaways

• A consignment agreement lets a consignee sell your goods while you retain ownership until sale, which can reduce upfront risk and help you test markets.
• The mechanics matter: be clear on title, risk, insurance, pricing, commission, reporting, returns and authority to sell, with strong record‑keeping and audit rights.
• Under the PPSA, most business consignments are “commercial consignments” that require PPSR registration to protect your priority if the consignee becomes insolvent.
• Manage common risks by registering early on the PPSR, limiting set‑off, holding proceeds on trust, aligning ACL obligations, and capping liability appropriately.
• Build a comprehensive contract with PPSA wording, brand and merchandising rules, consumer law compliance and practical termination rights, and ensure core elements of contract formation are satisfied.
• Using a tailored Consignment Agreement and understanding tools like the PPSR will give you a solid foundation as you scale.

If you would like a consultation on consignment agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.