consignment

What It Is

Consignment is an agreement between an owner and a third-party consignee whereby the consignee agrees to sell the owners goods in exchange for a fee.

How It Works

Consignment is an arrangement in which an item is placed in the care of another until purchased by a buyer. Until the item is sold, the consignor still claims ownership and is still responsible for anything that may happen to the item while it is in the care of the consignee.

For example, suppose Frank consigns his antique typewriter to Bob, who offers to sell it for him at his store. Frank (the consignor) and Bob (the consignee) have not exchanged any money; no purchase was transacted, and Frank still owns the typewriter. One day a customer purchases the typewriter at Bob’s store. Bob gives the proceeds to Frank, less an agreed-upon consignment fee for Bob's service as the seller.

Why It Matters

Consignment is a trust-based commercial arrangement from which both the consignor and the consignee can benefit.  Consignment shops are the most common example of this type of exchange. With the advent of the internet and e-commerce sites such as eBay.com, consignment has become much more common.

Source: Investing Answers