In the business world, transactions involving buying and selling are always involved. In other words, without sellers and buyers, the business world would not run smoothly. This is because both parties benefit each other.
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One of the collaborations between sellers and buyers in business is consignment receivables. This collaboration is done by selling a product obtained from a manufacturer and then reselling it. To understand what consignment receivables are, their benefits, and their drawbacks, read the following explanation.
Definition of Consignment Receivables
Basically, the term consignment receivables is not only used in business but also in the legal field. In the legal field, consignment can be defined as a situation where money is deposited with the court. Generally, consignment in the legal field occurs when a creditor refuses to accept payment from the debtor.
In the business field, it can be seen as a collaboration between a supplier or sender of goods and a retailer or receiver of goods. In consignment, the sender of goods provides the availability of goods or products to the receiver of goods.
Although the sender provides the goods, they will not receive income until the goods or products provided are sold by the receiver.
Therefore, in the Indonesian Dictionary (KBBI), consignment in the business field means entrusting merchandise to an agent or person for sale with payment. That is why consignment in the business field is often referred to as “selling on consignment.”
Simply put, the supplier of goods sells their products by consigning them to a retailer, and the profit is shared based on the final sales. It is this aspect that makes it fall under consignment receivables.
Benefits of Consignment Receivables
With the collaboration of consignment receivables, both parties will undoubtedly benefit. The various advantages of consignment receivables are as follows:
1. No Need to Rent a Store
When a product sender or owner wants to market their products, they do not have to own or rent a store for selling. This is because the product sender only consigns the products to a few suitable stores for cooperation. The absence of store rental costs means no expenses are incurred, allowing for greater profits.
2. Introducing the Brand of the Product
Anyone or any group that establishes a company surely wants their product brand to be known by many people, enabling them to compete with competitors. Moreover, the brand can be introduced directly to new customers. This benefit greatly contributes to the progress of the company, making more people aware of a particular product.
3. Increased Potential for Popular Products
In the business world, gaining profits is essential for the company’s sustainability. Profits are achieved through the sale of popular products. Therefore, to sell products quickly, consignment sales are one way to go. These products can be consigned to more than one store.
4. No Need to Pay for Storage
Another benefit experienced by product senders or owners when engaging in consignment receivables is that they do not have to pay for storage. The absence of storage costs saves on production expenses. Additionally, the lack of storage costs is due to the ability to dispose of unsold products immediately (expired food, for example).
5. Easy Determination of Product Demand
With consignment receivables, product owners can easily determine which products are popular and which ones are not. This is very useful because product owners can increase sales for popular products and evaluate products that do not sell well.
Disadvantages of Consignment Receivables
In addition to bringing benefits, there are also disadvantages to consignment receivables. Some examples can be seen below.
1. No Upfront Payment
Since this is a form of debt, it is natural that the product sender does not receive upfront payment. This is indeed a disadvantage of consignment receivables.
2. Potential for Significant Losses
The product sender may experience significant losses if they choose the wrong retailer. Choosing the wrong retailer can make it difficult for the consigned products to sell or even result in suboptimal sales.
3. Obligation to Take Back Unsold Items
If there are unsold consigned products, the product sender must take back those items. This can also result in losses for the product sender or owner.
4. Not All Products Are Suitable for Consignment Sales
Consignment sales do not apply to all types of products. Therefore, product owners must ensure whether their products can be sold through consignment or not.
5. Product Sender Does Not Want to Bear the Damages
Some consignment agreements require the product receiver to replace damaged products, even if the cause of the damage is unknown.
Examples of Consignment Receivables
To understand it better, here are a few examples of consignment receivables:
1. Sales between a Large Manufacturer and a Small Retail Store
This example often occurs between large manufacturers and small retail stores. Some products commonly sold through consignment include packaged coffee, instant noodles, snacks, soap, toothpaste, and other products that can be sold in retail.
Simply put, when you or your family owns a small grocery store in a village or residential area, someone from a retail company may offer their products to you. They will then enter into a consignment sales agreement with the store owner.
2. Sales between a Large Department Store and SMEs
This second example usually occurs when consignment sales are conducted between a large department store and small and medium-sized enterprises (SMEs). Consignment sales in this case can happen when you have a relatively small-scale product and want to market it by proposing to a supermarket. The proposal aims to increase product sales.
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That concludes the explanation of consignment receivables, its benefits, and examples. Hopefully, this information is helpful.