Consignment stock
Inventory held at the buyer's site but owned by the supplier until it is actually consumed or sold.
Definition
Under a consignment-stock arrangement the supplier places goods at the buyer's premises but retains ownership until they are drawn down, at which point title transfers and payment falls due. It improves availability and frees the buyer's working capital, while raising questions of risk, insurance and retention of title.
Example
A hospital keeps consignment implants on-site and is invoiced only for each one used in surgery.
Why this is a business risk
For the buyer, consignment stock creates questions of loss, damage and insurance responsibility while goods are on-site but unowned. If the supplier becomes insolvent, the goods remain the supplier's property and may be recovered by an administrator, disrupting supply. For the supplier, accurate consumption tracking is essential to avoid billing errors or undetected stock shrinkage.
How to manage it
- Define clearly in the contract who bears the risk of loss or damage while goods are on the buyer's premises.
- Agree on the consumption-reporting method and frequency so invoicing is accurate and timely.
- Conduct regular stock counts and reconcile them with reported consumption to detect shrinkage or reporting errors.
- Check whether the supplier's retention of title is validly registered and enforceable in the relevant jurisdiction.
- Include insolvency provisions so both parties know what happens to on-site stock if either side becomes insolvent.
Legal references
Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.
Frequently asked questions
Common questions about this term.