Commission on Consignment: Ordinary, Del Credere and Over-Riding

A consignee earns commission for acting on the consignor's behalf, and a consignment agreement can provide for up to three distinct kinds of commission, each rewarding a different aspect of the consignee's work.

Ordinary Commission is the basic remuneration for the routine work of selling — receiving, storing and selling the goods, and remitting the proceeds. It is usually a fixed percentage of the gross sale proceeds (the total value of goods actually sold), and is earned regardless of whether a particular sale was for cash or on credit, and regardless of whether the customer eventually pays in full.

Del Credere Commission is an ADDITIONAL commission, over and above ordinary commission, paid to a consignee who is willing to GUARANTEE the collection of money from customers to whom goods were sold on credit. In effect, the consignee is being paid extra to take on the credit risk that would otherwise fall on the consignor. Once del credere commission has been agreed and earned, any bad debt that later arises from a credit sale becomes the CONSIGNEE's own loss to bear — it is not recorded as a loss in the consignor's books at all, because the consignee has, in substance, already been paid (through the del credere commission) to insure the consignor against exactly this risk. Where NO del credere commission has been granted, the position is the ordinary one: a bad debt on a credit sale remains the consignor's own loss, and is debited to the Consignment Account like any other expense of the consignment.

Over-Riding Commission is a further, EXTRA incentive commission, paid to reward exceptional selling performance — most commonly, a percentage of the amount by which the actual sale proceeds EXCEED a stipulated invoice price or an agreed sales target. Because it rewards the consignee only for the amount achieved ABOVE that benchmark, it is calculated on the excess alone, not on the whole of the sales, and exists specifically to motivate the consignee to secure the best possible price rather than simply moving the goods at any price.