A consignment agreement protects both you and your vendors by clarifying payment splits, liability, and inventory management before a single piece hits your floor. Without a signed document, disputes over commission rates, unsold merchandise, and damage claims can tank vendor relationships and drain your profit margins. Here's how to build an agreement that keeps everyone on the same page.
Why Your Shop Needs a Written Agreement
Verbal understandings don't hold up when a vendor's designer handbag walks out without payment, or a customer damages a consigned leather jacket. A written agreement is your legal shield and your vendor's assurance that you're operating professionally. It also standardizes terms across all your consignors, preventing the chaos of different commission rates and return timelines that naturally creep in when you're scaling.
Core Terms to Include
Commission & Payment Structure
State your exact commission percentage upfront. Most consignment shops take 30–50% of the final sale price, depending on category and vendor tier. For example, you might charge 40% on general apparel but 35% on high-end designer items to attract better inventory. Clarify whether commission is deducted from the sale price before or after any discounts you apply, and specify your payment cycle—typically 30–60 days after sale or monthly settlements.
Consignment Period & Unsold Merchandise
Define how long items stay on your floor: 60–90 days is standard for fast-moving apparel. Spell out what happens to unsold stock. Do vendors pick it up, do you donate it, or do you keep it at a reduced rate? A clear exit strategy prevents awkward conversations and abandoned inventory taking up shelf space.
Liability & Damage
State whether your shop covers loss, theft, or damage during consignment. Most small resale shops place liability on the vendor once items reach the floor, though you might offer optional insurance for high-value pieces. Be explicit: "Mercoly Consignment Shop is not responsible for damage caused by normal wear, customer handling, or store incidents beyond intentional negligence."
Pricing & Markdown Authority
Specify who sets the initial price. Most consignment agreements let the shop markdown unsold items after 30–45 days to keep inventory moving. If a vendor-set price sits unsold for 60 days, can you reduce it 10–15%? Write it down to avoid friction.
Inventory Tracking & Records
Require vendors to provide an itemized list with photos, original prices, and condition notes. You maintain detailed sales records and share monthly summaries with each vendor. Digital tracking through a POS system or simple spreadsheet keeps everyone honest and speeds up payment reconciliation.
What to Include in the Document
- Vendor name, contact, tax ID
- Item descriptions, quantities, condition grades
- Commission percentage and payment terms
- Consignment start and end dates
- Store's liability limits and damage disclaimers
- Procedures for price reductions and unsold item disposition
- Vendor's right to inspect sales records
- Either party's right to terminate with 7–14 days' notice
- Signature lines and date
Pro Tips for Vendor Relationships
Keep a copy on file for 3 years for tax and dispute purposes. If you're listing your consignment shop on Mercoly, include a link to your consignment process or guidelines in your profile—vendors searching for retail partners often want to see your terms upfront, which can accelerate inquiry conversion and help you attract higher-quality consignors.
Review your agreement annually. As your shop scales, you might adjust commission structures by category or introduce seasonal rates. Communicate changes 30 days in advance to active vendors and get updated signatures.
For high-value consignors (those bringing $5k+ in inventory), consider offering a tiered commission: 45% standard, but 42% if they hit $10k in sales that quarter. This incentivizes vendors to keep quality items flowing.
Frequently Asked Questions
Q: Can I charge a consignment fee upfront? Some shops charge $10–25 per vendor to cover administrative costs, though this can deter occasional consignors. If you do, disclose it clearly and cap it—most vendors accept a small flat fee if your commission rate is competitive.
Q: What happens if a customer returns consigned merchandise? Write a returns policy stating whether customers can return consigned items. If yes, clarify whether the vendor receives their commission back or if the shop absorbs the cost as a business expense.
Q: How do I handle disputed damage claims? Require vendors to photo-document items at drop-off and flag any pre-existing damage. For claims filed after sale, offer to review your store camera footage or suggest split liability (vendor absorbs 20–30%) if damage is plausible but not provable.
Start building trust with your vendors today by creating a clear, fair consignment agreement—it's the foundation of a scalable, repeatable business model.