Consignment stock: goods on site that you do not yet own

Title, custody and the moment of transfer

The defining feature is the separation of physical custody from ownership. The customer holds and controls the goods but does not own them until a trigger event occurs, usually consumption, sale or a defined period elapsing. The agreement must define that trigger precisely, along with how usage is reported and how frequently, because the reporting mechanism is what converts physical movement into an invoice and a payable.

Who carries which risk

Ownership does not automatically carry every risk. Loss, damage and shrinkage while goods are in the customer's custody are commonly the customer's responsibility even though title has not passed, and insurance obligations should be stated rather than assumed. Ageing is the other frequent dispute: if slow-moving consignment stock deteriorates or becomes obsolete, the agreement needs to say who absorbs it and after how long, or the question surfaces only when the value has already gone.

The working capital effect and its limits

For the customer the appeal is availability without funding, which improves stock metrics and cash conversion. That benefit is real but not free: suppliers price the capital they are being asked to carry, sometimes explicitly and sometimes in the unit price. Where the supplier's cost of capital is higher than the customer's, the arrangement moves the funding to the more expensive party and the total cost rises even though one balance sheet looks better.

Controls that keep it workable

Consignment stock must be segregated or clearly identified, counted on an agreed cycle, and reconciled between both parties' records. Usage reporting should be frequent enough that the supplier can replenish sensibly. Termination terms need to cover what happens to unconsumed stock: whether it is returned, purchased or written off. Where goods are held across a border, the arrangement can also raise questions about registration and reporting obligations that vary by jurisdiction and should be checked with local advisers.

Frequently asked questions

Is consignment stock the same as vendor managed inventory?

No. Consignment concerns who owns the goods; vendor managed inventory concerns who decides the replenishment. The two are often combined, but each can exist without the other, and confusing them produces agreements that settle ownership while leaving the decision rights undefined.

Why would a supplier agree to it?

To secure a position at the customer, to improve availability and therefore consumption of its product, to displace a competitor, or because the customer's volume justifies the funding. Suppliers usually seek minimum consumption commitments or pricing that reflects the capital they are carrying.

How should consignment stock be counted?

On an agreed cycle with both parties able to verify, and reconciled against reported usage. Because the two organisations maintain separate records of the same physical stock, discrepancies accumulate silently unless a reconciliation routine exists from the start.