What Is Consignment? An Introduction For Australian Businesses

If you’re launching or growing a business in Australia, you’ve probably come across “consignment” when talking about sales, inventory and supplier relationships. It’s a flexible sales model that can reduce upfront stock costs, help you test new products, and expand your retail footprint without committing to bulk purchases.

But what exactly is consignment, how does it work in Australia, and what legal boxes do you need to tick? In this guide, we’ll unpack the essentials in plain English so you can use consignment confidently-and avoid common pitfalls.

We’ll cover what consignment means, how it differs from wholesale, the key legal risks (including the important PPSA/PPSR registration issue many businesses miss), and the documents you’ll want in place before you ship a single item.

What Is Consignment?

Consignment is a sales arrangement between a consignor (the owner of goods) and a consignee (the retailer or distributor who agrees to hold and sell those goods).

Under a consignment agreement, you (as consignor) deliver goods to a consignee, but you retain ownership until those goods are sold to an end customer. The consignee displays and sells the goods, then pays you the sale proceeds, minus an agreed commission or fee.

For example, a Melbourne designer might place handbags in a local boutique “on consignment”. The boutique doesn’t pay upfront. When a bag sells, the boutique deducts a 30% commission and remits the balance to the designer. Unsold stock can be returned after a set period.

This can be a win–win: consignors get exposure without forcing a retailer to buy stock, and consignees reduce inventory risk. It also introduces specific legal and commercial risks that you should manage carefully from day one.

How Does Consignment Work In Australia?

While every deal is different, a typical arrangement works like this:

1. You (consignor) own the goods you want to sell.
2. A consignee (store, website, marketplace, or distributor) agrees to hold your goods and try to sell them.
3. You transfer possession of the goods, but you keep legal title until a consumer sale occurs.
4. The consignee markets and sells the goods, often alongside their own stock.
5. When an item sells, the consignee deducts their commission/fee and pays you the balance at agreed intervals.
6. Unsold goods at the end of a consignment period are usually returned.

You’ll see consignment in boutique retail, fashion and accessories, art and homewares, second-hand and vintage stores, and even higher-value categories like vehicles and industrial products.

Consignment vs Wholesale: What’s The Difference?

• Wholesale: The retailer buys stock upfront and owns it immediately. The supplier is paid regardless of retail sell-through.
• Consignment: The retailer holds stock but doesn’t buy it. Title stays with the consignor until a consumer sale. Payment only happens when an item sells, and unsold stock can be returned.

Why does this matter? For retailers, consignment reduces upfront inventory spend. For suppliers, it can open doors to new outlets-but cash flow is less predictable and stock control becomes crucial. Clear written terms, strong record-keeping and good reporting processes are essential in either model.

Legal Requirements And Risks In Australia

Consignment adds a few legal wrinkles on top of the usual business compliance. Here are the big issues to have on your radar.

PPSA/PPSR: Protecting Ownership And Payment Rights

Under Australia’s Personal Property Securities Act (PPSA), many commercial consignments are treated like a “security interest”. If you’re the consignor, you’ll usually want to register that interest on the Personal Property Securities Register (PPSR) to protect your rights if the consignee becomes insolvent or on-sells the goods improperly.

• Registering on the PPSR helps you prove ownership and priority against other creditors.
• Failing to register can mean you lose your goods or proceeds if the consignee goes under, even if you still “own” them under the contract.

To get across the basics, start with what the PPSR is and why timely, accurate registration matters. If you’re entering consignment at scale, consider getting help to register a security interest correctly from the outset.

Australian Consumer Law (ACL)

When goods are sold to consumers, the Australian Consumer Law applies-regardless of whether stock is on consignment or owned outright. You’ll need to manage consumer guarantees, refunds/returns, and product safety. If you’re the retailer (consignee), you’ll be dealing with customer issues directly, so make sure your processes and customer terms reflect ACL requirements. For nuanced or high-risk categories, it can help to speak with a consumer law lawyer.

Insurance And Liability

Consignment contracts should spell out who carries the risk for loss, theft or damage while goods are in the consignee’s possession. Many businesses also take out specific cover for stock in transit and on premises. A quick insurance policy review can ensure your coverage aligns with how you actually trade.

Privacy And Online Sales

If any customer data is collected (e.g. when selling through an online store), you’ll need a clear Privacy Policy and processes that comply with the Privacy Act. This is especially important if you’re splitting responsibilities for marketing, shipping or customer support between consignor and consignee.

Intellectual Property (IP)

Where your products or brand are unique, consider registering trade marks and other IP to prevent copycats. Your consignment agreement should also prevent unauthorised use of your brand assets and set clear rules for how your goods are displayed and promoted.

Records, GST And Tax

Both parties should maintain accurate stock and sales records, reconcile consignment reports against POS data, and issue tax invoices correctly. Consignment doesn’t change your GST or income tax obligations, but it can complicate how and when revenue is recognised.

Because tax settings are specific to your structure and turnover, it’s best to run your GST and accounting approach past your accountant before you scale consignment arrangements.

What Should Your Consignment Agreement Cover?

A written consignment agreement is the backbone of the relationship. It sets expectations, reduces misunderstandings and makes it easier to resolve issues quickly.

Key clauses usually include:

• Goods and delivery: What’s being consigned, how it’s packed, labelled and delivered, and when risk passes for transit and on-site storage.
• Title and PPSR: Confirmation that title remains with the consignor until sale, and the consignee’s cooperation with PPSR registration and notices.
• Pricing and discounting: Who sets retail price, how discounts or promotions are handled, and when prior approval is needed.
• Commission/fees and payment: Commission rates, what’s included/excluded (e.g. shipping), payment frequency, reporting detail, and right to audit sales records.
• Insurance and risk allocation: Who is responsible for loss, damage or theft while in the consignee’s control.
• Returns and defective goods: Who handles customer returns and ACL compliance, and how defective stock is treated.
• Unsold stock: Return timeframes, costs, and condition standards for returns.
• Brand and merchandising: Display standards, online listings, photography use and marketing approvals.
• Termination and remedies: Exit rights, notice periods, and what happens to unsold stock and outstanding payments.

If you’re ready to formalise your arrangement, our team can prepare or review a tailored Consignment Agreement so the commercial deal you’ve discussed is properly reflected in the legal terms.

Getting Set Up And Staying Compliant

Consignment works best when your business foundations are in place and your legal documents match how you actually trade.

Choose A Structure And Get Registered

You don’t need to be a company to use consignment, but your structure affects liability and tax. Many founders start as a sole trader for simplicity; others opt for a company for limited liability, investor readiness and clearer separation of business and personal assets.

• Sole trader: Quick to start, fewer admin steps, but you’re personally liable for debts.
• Partnership: Similar to sole trader but with two or more people, and shared liability.
• Company (Pty Ltd): A separate legal entity that can offer limited liability-useful if consigning higher-value goods or trading at scale. If you’re heading this way, we can help with a smooth company set up.

Register an ABN, consider whether you need a business name, and set up your accounting and inventory systems early.

Put The Right Documents In Place

Beyond the consignment contract itself, a few core documents make day-to-day operations smoother:

• Consignment Agreement: Defines the commercial deal, ownership, PPSR, reporting, and payment terms.
• Terms of Sale: If you sell direct to consumers (online or in-store), clear Terms of Sale help set expectations on pricing, delivery, returns and liability.
• Website Terms: For online sales or catalogues, Website Terms & Conditions set the rules for site use and limit risk.
• Privacy Policy: If you collect personal information (e.g. newsletter sign-ups, online orders), publish a compliant Privacy Policy and follow it in practice.
• Insurance: Confirm the policies and limits you need, then consider an Insurance Policy Review so your cover matches your consignment model.

If cash flow timing is sensitive, be explicit about reporting cycles, payment due dates and late fees. For B2B accounts, a short clause set or separate terms can support clear invoice and credit practices alongside your consignment contract.

Operational Best Practices

• Stock control: Use SKUs, serials or barcodes and get written delivery acknowledgements. Reconcile inventory regularly against sales reports.
• Reporting discipline: Agree a standard sales report format (units sold, returns, discounts, net payable) and a fixed payment date.
• Display and brand standards: If presentation matters, include simple merchandising guidelines and image-use rules.
• Dispute resolution: Set a quick process for queries about shortages, damages or returns, and keep the documentation tidy and centralised.

Key Takeaways

• Consignment lets a retailer hold and sell your goods while you retain ownership until sale-great for testing markets and reducing upfront stock risk.
• Protect your position under the PPSA by registering on the PPSR where required; without registration, you can lose priority if the consignee becomes insolvent.
• Australian Consumer Law still applies to customer sales; align your processes, returns and customer terms accordingly and get help for complex categories.
• Spell out pricing, commission, reporting, payment timing, risk and returns in a tailored Consignment Agreement to minimise disputes.
• Back up your model with essentials like Terms of Sale, Website Terms & Conditions and a Privacy Policy, and make sure your insurance matches your risk.
• Talk to your accountant about GST and revenue recognition for consignment sales so your tax treatment is correct from day one.

If you’d like a consultation on setting up or reviewing a consignment arrangement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.