# Consignment stock

Source: https://contracko.com/glossary/consignment-stock

# 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.

### How Contracko helps

Contracko stores the consignment agreement with its extracted terms, including reporting intervals, title-transfer triggers and audit rights, and sends reminders when stock-count or reconciliation milestones fall due, helping teams maintain the operational discipline the arrangement requires.

## Legal references

- [BW 3:92 Dutch Civil Code: retention of title Dutch law](https://wetten.overheid.nl/BWBR0005291)

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.

## Relevant for

[Healthcare](https://contracko.com/industries/healthcare)[Manufacturing](https://contracko.com/industries/manufacturing)[Warehousing](https://contracko.com/industries/warehousing)[Retail & Wholesale](https://contracko.com/industries/retail-wholesale)

## Related clauses

- [Retention of Title](https://contracko.com/clause-library/retention-of-title)
- [Purchase Obligation / Minimum Take](https://contracko.com/clause-library/purchase-obligation)

## Related terms

- [Retention of title](https://contracko.com/glossary/retention-of-title)
- [Purchase obligation (minimum take)](https://contracko.com/glossary/purchase-obligation)
- [Delivery terms](https://contracko.com/glossary/delivery-terms)
- [Total Cost of Ownership](https://contracko.com/glossary/total-cost-of-ownership)

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## Frequently asked questions

Common questions about this term.

- **Q:** Who insures consignment stock on the buyer's premises?
  **A:** The contract should specify this. In the absence of a clause, the goods remain the supplier's property, suggesting the supplier should insure them, but in practice buyers often hold the stock under their own premises insurance with the supplier named as a co-insured.

- **Q:** What happens to consignment stock if the supplier becomes insolvent?
  **A:** The stock remains the supplier's property and falls into the insolvency estate; the administrator can reclaim it. Buyers should address this in the contract and consider alternative supply arrangements in their continuity planning.

- **Q:** How is title transferred in a consignment arrangement?
  **A:** Usually at the point the buyer draws down the goods for use, as defined in the contract. This is the trigger for payment to become due and for risk to transfer to the buyer.

- **Q:** Can the buyer sell consignment stock to its own customers?
  **A:** Only if the contract permits it. In retail consignment arrangements this is the intended model; in industrial or healthcare settings the use is typically limited to operational consumption rather than resale.

- **Q:** What is the accounting treatment for consignment stock?
  **A:** Under IFRS and most GAAP frameworks, consignment stock is not recognised on the buyer's balance sheet until title transfers, since the buyer does not own it. The supplier continues to carry it as inventory.

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