What Is Sale or Return Basis?

sale-return-basis Credit: Alan Light/CC-BY-2.0

Sale or return basis, also known as consignment sale, is an arrangement in which a seller provides goods to a reseller or dealer who pays for the goods only when they are resold. The goods remain property of the original seller until they are paid in full. If the goods are not sold after a certain time period, the dealer reserves the right to return the goods to the seller.

Consignment arrangements require no commitment on the part of the dealer and thus are perfect for situations when goods have not yet proven their market value or durability. This can provide incentive for dealers to stock goods they may find too risky to keep in their inventory. Magazines, newspapers and seasonal goods such as garden seeds and Christmas decorations are often sold on consignment. This allows dealers to offer a wider range of this material without the risk of being stuck with goods that are out of date or only sell during specific times of the year. Certain industries such as publishers and book distributors have long functioned on consignment sales agreements.

Manufacturers entering into consignment agreements should be aware that although there are clear advantages of exposure in the arrangement, much of the process is out of their control. They cannot be assured that returned goods do not get damaged through handling or that dealers do not aggressively promote similar items in their inventory.