Commission on Consignment

Because the consignee bears none of the ownership risk, his only reward for selling the consignor's goods is a commission, calculated as a percentage of the sale proceeds he realises. Depending on the responsibilities placed on the consignee, one, two, or all three of the following types of commission may be agreed between the two parties.

1. Ordinary (simple) commission. This is the basic commission paid to every consignee for the mere act of selling the goods, whether the sale is for cash or on credit. It is always calculated as an agreed percentage of the total gross sales made during the period, and it is allowed regardless of whether the consignor eventually recovers the sale proceeds from the buyer.

2. Del credere commission. Where the consignee sells on credit, the consignor runs the additional risk of some customers never paying. To transfer this bad-debt risk to the consignee, the consignor may agree to pay an extra del credere commission. Once a consignee is given del credere commission, he personally guarantees the recovery of the debt from every customer he sells to on credit — if a customer subsequently defaults, the loss is the consignee's alone; it is never recorded as a bad debt in the consignor's books, because the consignor treats his sale proceeds as fully realised through the consignee regardless of what the individual buyer eventually pays. Del credere commission is usually calculated on total credit sales, though many examination problems (and many real agreements) calculate it on total sales for simplicity, unless the split between cash and credit sales is separately given. …