Meaning Consignment: Understanding Consignment Agreements & Key Legal Considerations for Your Australian Business

Consignment can be a smart way to grow your sales without heavy upfront costs. Whether you run a boutique, manage a gallery, sell specialty goods, or operate a second‑hand store, consigning stock lets you test demand, reach new customers, and share risk with a retail partner.

But the legal details matter. Who owns the goods at each stage? What happens if stock is damaged, stolen, or doesn’t sell? And how do you protect your rights if a consignee gets into financial trouble?

In this guide, we unpack what “consignment” really means in Australia, how consignment agreements work, the key legal risks to manage, and the steps to set up your arrangement properly. Our aim is to help you lock in the right protections from day one so you can focus on growing your business confidently.

What Does “Consignment” Mean In Australia?

Consignment is an arrangement where one party (the consignor) provides goods to another party (the consignee) to sell on the consignor’s behalf. The key point is ownership: the consignor remains the owner of the goods until they are sold to a third‑party customer.

Only after a sale does the consignee usually account for the proceeds (less any agreed commission or fees) and ownership passes to the customer. If goods don’t sell within the agreed period, they are typically returned to the consignor.

For example: a ceramic artist (consignor) places 30 vases with a homewares store (consignee). The store displays and sells the vases to customers, charges a commission on each sale, and remits the balance to the artist. Unsold stock is returned at the end of the consignment period.

Consignment is not a regular sale between consignor and consignee. The consignee hasn’t “bought” the inventory. This distinction has important consequences for risk, insurance, accounting, tax, and insolvency events-so it’s critical to document your deal clearly.

How Do Consignment Agreements Work?

A consignment agreement is the contract that sets the rules for your arrangement. It should set out the commercial deal and the legal protections both sides expect.

In practice, this is where you define exactly how the relationship works-ownership, payment, commission, returns, reporting, risk allocation, and more. A clear, tailored Consignment Agreement helps prevent confusion and protects both parties if something goes wrong.

What Your Consignment Agreement Should Cover

• Ownership at each stage: Confirm that the consignor retains title until sale to the end customer, and set out when risk transfers for things like transit, storage, or display.
• Payment mechanics: How often sales are reconciled, when payouts occur, and how commission or fees are calculated (percentage, tiered rates, or fixed fees).
• Reporting and records: Sales reports, stocktake frequency, point‑of‑sale data access, and audit rights.
• Returns and unsold stock: Timeframes, condition requirements, return freight costs, and options like discounts, promotions, or end‑of‑season clearance.
• Risk, loss, and insurance: Responsibility for theft, damage, or deterioration; minimum security or storage standards; insurance obligations.
• Customer law compliance: Allocation of responsibilities under the Australian Consumer Law (refunds, repairs, warranties, and statements made to consumers).
• Brand and marketing: How the consignee can use product images, brand assets, and descriptions across in‑store and online channels.
• Disputes and exit: Notice periods, termination triggers, immediate return of stock, and dispute resolution processes (e.g. good faith discussion then mediation).

Because every consignment is different (product type, price point, sales channel, and risk profile), resist the urge to rely on a generic template. A bespoke agreement aligned to your products and the way you trade is worth its weight in gold.

Key Legal Risks And Protections To Consider

Consignment offers flexibility, but it also introduces legal risks that you can and should manage up front. Here are the big ones to consider in Australia.

1) Ownership, Risk And Insolvency

Make it crystal clear who owns the goods before sale and who is responsible for risk at each stage-during delivery, while on display, and during returns. This avoids disputes if there’s damage, shrinkage, or stock variance.

Also consider insolvency: if the consignee goes into liquidation or administration, you want to reduce the chance your stock is treated as part of their assets. Contract wording helps, but there’s a more powerful step for consignors: registering on the PPSR.

2) Register Your Interest On The PPSR

Because consignment often involves goods in the consignee’s possession that still belong to the consignor, Australian law treats many consignment arrangements as a “security interest”. If you’re the consignor, it’s often essential to register that interest on the national Personal Property Securities Register (PPSR).

Registration helps protect your priority to the goods (or their proceeds) if the consignee becomes insolvent or if other creditors claim against their assets. Timing matters, so make PPSR registration part of your onboarding checklist before delivering stock.

3) Australian Consumer Law (ACL) Obligations

The Australian Consumer Law (ACL) applies to how goods are described, priced, and sold, and to consumer guarantees. If a product is faulty, doesn’t match its description, or fails to meet acceptable quality, consumers may be entitled to a repair, refund, or replacement.

It’s wise to set out who is responsible for managing consumer claims, and to ensure that statements made in store or online aren’t misleading or deceptive-see the overview of section 18 (misleading or deceptive conduct) for context. You can also refresh your understanding of warranties and consumer rights through Sprintlaw’s guidance on ACL warranties.

4) Payment Terms, Reporting And Record‑Keeping

Clarity around payment timelines, commission, chargebacks, and how returns are handled will save headaches later. Many parties agree to scheduled sales reports (e.g. weekly or fortnightly) with a matching payout cycle and transparent deductions for agreed fees.

Agree on minimum reporting detail, including SKU‑level sales, discounts applied, and the status of returned or damaged stock. Good records help both parties reconcile inventory and cash flow quickly.

5) Insurance And Loss

Talk openly about insurance. Will the consignee’s policy cover consigned stock for theft or damage on premises? Do you require the consignee to maintain a certain level of cover and list you as an interested party? Spell these requirements out in the contract and make minimum security and storage practices explicit.

6) Intellectual Property And Branding

Consignments often involve the consignee using your brand in‑store and online. Clearly license how they can use your brand assets, imagery, and product descriptions, and require adherence to your brand guidelines. If you want stronger protection, consider registering your brand as a trade mark (applications are filed with IP Australia)-you can read more about classes in the trade mark classes guide.

7) Privacy And Customer Data

If any personal information is shared between you and the consignee (for example, customer contact details for warranty support), set out how that data will be handled. Under the Privacy Act, many small businesses are not legally required to have a Privacy Policy unless they meet certain criteria (for example, they are an APP entity, handle health information, operate a credit reporting business, or trade in personal information). That said, if you collect personal information-especially online-it’s best practice to have a clear, accessible Privacy Policy and align your processes accordingly.

8) Ending The Relationship And Resolving Disputes

Include practical exit terms. If either side ends the relationship, specify the process and timeframe for returning all stock, final reporting, settlement of accounts, and the removal of branding. A simple tiered dispute process (discussion, then mediation) helps keep issues out of court.

Step‑By‑Step: Setting Up A Consignment Arrangement

Getting the basics right at the start will set you up for smoother trading and fewer disputes. Here’s a straightforward approach that works for most Australian businesses.

1) Choose The Right Partner

• Check reputation and fit: Do they attract your target customer? Is their store or platform a good brand match?
• Assess operational strength: POS capability, stock controls, customer service, security, and returns handling.
• Ask about financial stability: Longevity, payment history, and any red flags from other suppliers.

2) Agree The Commercials

• Commission or fee structure: Percentage by product category, tiered rates for volume, or a fixed fee per sale.
• Pricing and promotions: Who sets RRP, discount rules, and clearance permissions.
• Sales reporting cadence and payout cycles: Weekly, fortnightly, or monthly, and the exact remittance timetable.

3) Put It In Writing

Document the deal in a tailored Consignment Agreement. Include a detailed schedule of the inventory being supplied (SKUs, quantities, and any serial numbers). If you’re the consignor, diarise PPSR registration as part of onboarding before the first shipment.

If you’re setting up a new entity to manage your wholesale or consignment operations, you may also want to consider your structure and formalise your company through company set up and a suitable constitution. This is optional, but many growing businesses prefer the limited liability and professional presentation a company provides.

4) Sort Out The Admin

• Inventory processes: Labeling, stocktake frequency, and how to handle damages or write‑offs.
• Insurance: Confirm who insures what and request certificates of currency if required.
• Brand assets: Provide approved images, product descriptions, and brand guidelines for consistent presentation.

5) Launch And Monitor

• Track early sales and customer feedback, then adjust pricing and display where needed.
• Review reports promptly, reconcile payouts, and raise discrepancies quickly.
• Schedule periodic reviews to decide on extending, expanding, discounting, or returning stock.

6) Keep Compliance On Your Radar

Make sure consumer guarantees are met, returns are handled fairly, and advertising is accurate. If you’re trading under a name, check the difference between a business name vs company name and ensure your registrations are in place. If you cross turnover thresholds or sell particular categories of goods, consider GST and other tax obligations-an accountant can help you confirm what applies in your circumstances.

Tip: Where your arrangement is complex or high‑value, getting a contract lawyer to review your terms early often saves significant time and cost later.

What Legal Documents Will You Need?

Every consignment relationship is unique, but most Australian businesses should consider the following documents and tools.

• Consignment Agreement: The core contract between consignor and consignee covering ownership, payments, commission, risk, reporting, returns, marketing use, and termination.
• Inventory Schedule: A detailed list of goods on consignment (SKUs, quantities, serial numbers), cross‑referenced in your agreement.
• PPSR Registration: If you’re the consignor, register your interest on the PPSR to protect priority over goods and proceeds in insolvency scenarios.
• Customer‑Facing Terms: Clear terms for in‑store or online sales (refunds, warranties, and returns aligned with the ACL). If selling online, pair with Website Terms and Conditions or, for B2B arrangements, Terms of Trade.
• Privacy Policy (where applicable): Not every small business is legally required to have one, but if you collect personal information-especially online-it’s prudent to implement a compliant Privacy Policy and align your practices.
• Insurance Documents: Evidence of cover for goods in transit or on premises, including any endorsements or named‑interested‑party requirements.
• Brand Licence/Guidelines: A simple licence within your consignment agreement or a separate document regulating use of your brand assets, imagery, and product descriptions.

Not every business will need all of these, but most will need several. The right bundle depends on your products, channels (in‑store vs online), and the partners you work with.

A Note On Accounting And Tax

Consignment can affect how you recognise revenue and cost of goods sold, and how GST is handled. The exact treatment depends on your structure and commercial setup. It’s sensible to confirm your accounting and GST position with a qualified accountant, especially as your volumes increase.

Key Takeaways

• Consignment means the consignor supplies goods for the consignee to sell on their behalf, while ownership remains with the consignor until sale to the customer.
• A clear, tailored consignment agreement should cover ownership, payment, commission, insurance, ACL responsibilities, reporting, branding, and how to end the arrangement.
• Consignors usually should register their interest on the PPSR to protect priority over stock and proceeds if the consignee becomes insolvent.
• The Australian Consumer Law applies to descriptions, pricing, and consumer guarantees-allocate responsibilities and ensure no misleading or deceptive conduct.
• Privacy obligations depend on your circumstances; even when not strictly required, implementing a practical Privacy Policy is good practice if you collect personal information.
• Protect your brand by setting clear marketing and brand‑use rules and consider trade mark protection via IP Australia-see the guide on trade mark classes for planning.
• Confirm accounting and GST treatment with an adviser so your reporting and tax are set up correctly from day one.

If you’d like a consultation on setting up or reviewing a consignment arrangement-or need a tailored Consignment Agreement-you can reach our team at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.