Businesses need to expand their operations in other geographical areas, either domestically or abroad, in order to gain new markets and sell more products and thus generate more profit. One way to sell products is to set up multiple subsidiaries or branches in different parts of the country or abroad. But doing so requires considerable investment, long-term investment, and the deployment of business-related manpower as well as costs that may not be economically justified; Consignment is the key to sell the products without these complications. By way of a contract, they provide their products in trust to another company so that they can sell the goods on behalf of the business unit.
Provider: The person or company that sends the goods to the seller is called the provider. In other words, the provider is the producer and sender of the goods.
Seller: The person or company who receives the trustee goods for sale and receives a commission from its sale.
Trustee products: The goods provided from provider called trustee products.
It should be noted that the seller usually receives a commission for the work (receiving a commodity from the marketing and product sales). Since consignment is recognized as a business practice under Iranian trade law, therefore, this law of business defines that consignment is the work of one who trades in his own name but on anothers account and recieves commission for its services. It should be noted that the products is given for the seller is trustee and untill the sale is done and the products sold is owned by the provider.
- In the ordinary sale as soon as the sale is effected, the buyer becomes the owner of the products and transfers all the benefits and risks and rights to them, while in the consignment it is not like that and until the shipped item is not sold, it is still the owner of the product, so no profit is recognized in this situation because the benefits and risks of the goods are not transferred to the seller, buyer or the client yet.
- In the sale of a commodity, the commander of the bankruptcy would be able to retrieve his commodity immediately, but if he had not sold the commodity directly, and had normally sold it to him, he would not have done so. It should act like other creditors and probably get a few percent of its claim.
- Market development and more sales and thus increase the profit of selling products without the need for marketing through the manufacturer itself
- No need to create branches in different places and thus save costs
- More reassurance than the safe receipt of commodity prices to normal and credit sales
- Due to fluctuations in commodity prices in the market, it is possible that the previously purchased commodity will fall in price and in this regard, the business will not be harmed by that.
- In the normal case of sale, if the purchased goods are not sold, some of the buyer’s capital remains stagnant and on the other hand, because he has made obligations in return for paying the price, he will suffer liability and losses money but in consigment sale does not apply these rules.