Consignment Stock: Legal Essentials For Australian Businesses

Consignment stock can be a smart way to get your products on shelves, grow your brand, and manage cash flow without taking on all the risk upfront. It’s popular across fashion, giftware, galleries and specialty goods - and it can work for both suppliers and retailers.

Like any business arrangement, though, consignment comes with legal obligations you’ll want to get right from day one. Clear contracts, good record-keeping and the right protections in place will help you trade confidently and avoid disputes.

In this guide, we’ll unpack what consignment stock is, how it works in Australia, the key legal risks to watch, and the documents you’ll need to protect your business. If you decide to move ahead, we’re here to help with tailored agreements and practical advice so you can focus on sales - not headaches.

What Is Consignment Stock?

Consignment stock (or “selling on consignment”) is when a supplier (the consignor) provides goods to a retailer or other seller (the consignee) to sell on their behalf. The key point is ownership: the supplier still owns the goods until they’re sold to the end customer.

When an item sells, the retailer remits the agreed price to the supplier (often less a commission, margin or handling fee). If the goods don’t sell within the agreed timeframe, they can typically be returned to the supplier or the term can be extended.

For example, imagine you produce small-batch ceramics. You place 50 pieces in a homewares store on consignment. The store doesn’t pay up front and you retain ownership. Each time a piece sells, the store pays you the agreed amount. Anything unsold at the end of the period is reconciled and either returned or rolled into a new term.

This structure can expand a supplier’s reach without forcing a retailer to buy stock outright. But because ownership and risk are handled differently than a standard wholesale sale, your legal setup matters.

How Does Selling On Consignment Work In Australia?

While every arrangement can be customised, most consignment models follow a simple flow.

• The supplier delivers goods to the retailer (or the retailer collects them) under a written agreement.
• The retailer displays, markets and sells the goods to customers, usually with agreed merchandising standards.
• When an item sells, the retailer pays the supplier the agreed amount (e.g. monthly or on a rolling basis), less any commission or margin.
• Unsold goods at the end of a period are reconciled, reported and either returned to the supplier or retained for a new term.

This model supports cash flow for both sides: the retailer only pays for what sells, and the supplier gets valuable shelf space and market exposure. To make it work smoothly, your agreement should set out ownership, risk, insurance, reporting, payment timing and what happens if something goes wrong.

Key Legal Risks And How To Manage Them

There isn’t a specific “Consignment Act” in Australia. Consignment arrangements are governed by contract law, commercial law and consumer protection laws. Here are the core risk areas and how to approach them.

1) Ownership, Title And PPSR Protection

In a genuine consignment, ownership stays with the supplier until the goods are sold to the end customer. That distinction is crucial if the retailer becomes insolvent or if third parties claim an interest in the goods.

To protect your position, suppliers commonly document their rights and register a security interest on the Personal Property Securities Register (PPSR). Registering on the PPSR helps you assert priority over your goods if the retailer goes into administration or liquidation. If consignment is part of your model, it’s worth understanding what the PPSR is and how to use it effectively, and you can also get help to register a security interest when you’re ready.

2) Risk, Care And Insurance

Your agreement should state who is responsible if goods are lost, stolen or damaged while in the retailer’s possession. Typically, the retailer must take reasonable care and follow storage/display standards, but you should be explicit about:

• Who carries the risk of loss or damage and from when
• Required insurance (e.g. theft, damage, public liability) and who must hold it
• What happens if goods are damaged, including reporting and replacement

Clear obligations reduce disputes and ensure both parties are adequately insured.

3) Payment Terms, Reporting And Reconciliation

Set out how and when the retailer pays you, how commissions/margins are calculated, and when sales are deemed complete (e.g. after a return window). Your agreement should also cover:

• Sales reports and timing (e.g. weekly, fortnightly, monthly)
• Access to records or audit rights if needed
• Reconciliation procedures and timelines
• Handling of returns and defects

If you sell online as well, align in‑store consignment processes with your online shop terms and conditions so customers get a consistent experience.

4) GST And Tax Treatment

Because title typically stays with the supplier until sale to the end customer, GST is generally accounted for at the point of sale. Your invoicing and accounting processes should reflect the arrangement so GST is collected and reported correctly.

This content is general information only and not tax advice. Tax outcomes can vary with your specific setup. It’s important to speak with your accountant to confirm GST timing, reporting and any income tax implications for your consignment model.

5) Australian Consumer Law (ACL)

Sales to customers are still covered by the Australian Consumer Law (ACL). That means customer guarantees, refunds, repairs and advertising rules apply whether stock is owned by the retailer or supplied on consignment.

Make sure your processes for returns and complaints are clear, and agree in writing who handles defects or customer remedies. Misleading or deceptive conduct is prohibited, so ensure pricing and promotions are accurate - it helps to be familiar with section 18 of the ACL in particular.

6) Privacy And Customer Data

If you collect personal information (for example, via a mailing list or online sales), consider your obligations under the Privacy Act 1988 (Cth) and the Australian Privacy Principles (APPs). Generally, the APPs apply to Australian businesses with annual turnover over $3 million, but some smaller businesses are also covered (for example, if they trade in personal information or provide certain services).

Even where the APPs don’t legally apply, many retailers and suppliers choose to publish a clear Privacy Policy and follow good privacy practices to build trust with customers and meet partner expectations.

7) Record‑Keeping And Inventory Control

Consignment requires strong inventory tracking: what was delivered, what has sold, what is returned and what remains in store. Your agreement should include reporting requirements, stocktake rights and how discrepancies are handled. Good data keeps cash flow predictable and reduces disputes.

Step‑By‑Step: Setting Up A Consignment Arrangement

A bit of preparation goes a long way. Here’s a practical roadmap you can adapt to your business.

1) Map Out Your Commercial Model

• Define your goals: test new markets, increase shelf space, or launch a new product line.
• Agree the financials: how margins or commissions work, expected sales timelines, and how returns are handled.
• Identify risks: slow‑moving stock, storage needs, multi‑store logistics, or seasonality.

Documenting your approach clarifies expectations and helps you draft contract terms that match how you’ll actually trade.

2) Choose The Right Counterparties

Look for retailers whose customers match your products. Discuss merchandising, promotions and reporting upfront. If you’ll place stock with multiple retailers, standardise your terms so reconciliation stays simple.

3) Put A Clear Consignment Agreement In Place

This contract is the backbone of your consignment relationship. It should cover ownership, delivery and acceptance, care standards, insurance, payment mechanics, reporting, returns, termination and what happens if a party defaults. If you don’t already have one, a tailored Consignment Agreement will give you a clear, practical framework that reflects your business model.

4) Secure Your Position Where Appropriate

Suppliers commonly protect their goods by registering an interest on the PPSR. This is especially important if your goods have value, you place stock in multiple locations, or you’re concerned about a retailer’s solvency. You can read about why the PPSR matters for your business, and when needed, get help to register a security interest correctly.

5) Set Up Practical Processes

• Agree a delivery/collection process and what documentation accompanies each shipment.
• Establish a standard for product display and care (e.g. temperature, packaging, security).
• Implement stock codes or barcodes so both parties can reconcile easily.
• Automate reporting where possible (weekly or monthly summaries, returns and adjustments).

Simple, consistent processes reduce admin and minimise errors as volumes grow.

6) Align Your Customer‑Facing Terms

If you sell direct to consumers (online or in‑store), make sure your customer terms and returns processes are consistent with the consignment arrangement. Many businesses implement Terms of Trade for wholesale and in‑store sales and keep their online shop terms aligned for eCommerce.

7) Review And Iterate

Start small, test the process, then refine. You can adjust commission, reporting frequency or display standards as you learn. If you amend the way you trade, update your agreement so the contract always reflects reality.

Do I Need A Specific Business Structure Or Licences?

You don’t need to be a company to use consignment - sole traders, partnerships, companies and trusts can all trade on consignment. That said, many suppliers choose a company for limited liability and a more scalable structure.

Business Structure Options

• Sole Trader: Simple and low cost, but no separation between you and the business for liabilities and debts.
• Partnership: Useful for two or more people operating together, but partners are generally jointly and severally liable for debts.
• Company: A separate legal entity that can offer limited liability and a more professional profile as you grow.

If you incorporate, you’ll deal with ASIC requirements and may adopt a Company Constitution tailored to how your directors and shareholders want to operate. If you’ll bring on staff to manage sales or logistics, use a clear Employment Contract and follow Fair Work obligations.

Licences, Permits And Industry Rules

There isn’t a specific “consignment licence”, but you must still comply with any industry or local laws that apply to your products and locations. Depending on your goods and operations, this could include:

• Local council permits for physical stores, signage or warehouse use
• Food handling or health permits for perishable products
• Alcohol licensing rules if consigning liquor
• Product safety standards and accurate labelling for consumer goods

If you’re handling customer data, consider your privacy practices and whether you should publish a Privacy Policy (noting that the APPs apply broadly to entities with turnover above $3m and some smaller businesses in specific circumstances).

What Legal Documents Will I Need?

Every business is different, but most consignment models rely on a core set of documents and policies to manage risk and expectations.

• Consignment Agreement: Sets out ownership, delivery, care, insurance, payments, reporting, returns, termination and dispute resolution between supplier and retailer. A tailored Consignment Agreement keeps everyone on the same page.
• Security Registration (PPSR): For suppliers, registering an interest on the PPSR can help protect your goods if the retailer becomes insolvent. When appropriate, you can register a security interest over consigned goods.
• Terms Of Trade / Online Terms: Customer‑facing terms that cover pricing, payment, delivery, returns and warranties. Many businesses implement Terms of Trade for in‑store/wholesale and separate online shop terms for eCommerce.
• Privacy Policy (where applicable): Explains how you handle personal information collected through your store or website. A clear Privacy Policy supports transparency and good practice, noting that legal obligations vary based on turnover and certain activities.
• Employment Contracts & Policies: If you hire, set clear expectations with a written Employment Contract and implement key workplace policies and rosters that comply with awards and the Fair Work Act.
• Warranties & Consumer Guarantees: If you provide warranties, make sure they’re compliant with the ACL. Many retailers also keep a compliant warranties against defects policy on hand.

Depending on your model, you may also use purchase orders, delivery dockets, merchandising guidelines, or a general security agreement for broader supplier‑retailer relationships. The best approach is to start with the essentials and expand as your operations grow.

Key Takeaways

• Consignment stock leaves ownership with the supplier until the item sells to the end customer, so your contract must deal clearly with title, risk and payments.
• Protect your position by documenting your rights and, where appropriate, registering an interest on the PPSR to help secure your goods.
• Get the basics in place: a tailored Consignment Agreement, customer terms, privacy practices that fit your business, and proper employment documents if you hire.
• The Australian Consumer Law still applies to sales on consignment, so be clear about returns, repairs, warranties and accurate advertising.
• GST is generally accounted for at the point of sale; confirm tax treatment with your accountant, as this article is general information and not tax advice.
• Choose a business structure that fits your goals - many suppliers opt for a company - and make sure any required permits or product standards are covered.

If you’d like a consultation on setting up consignment arrangements or need help drafting a Consignment Agreement tailored to your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.