Terms of Sale, who owns what and when do I get paid, knowing how and what you are really selling for both contractually and practically

Most sales are transacted through sales agreements, purchase orders, or contracts. Contractually they define the terms of the sale between the buyer and seller. Practically, from my experiences, they roughly define the terms of sale up which is conditioned by the parties involved, other environmental and industry factors, and other “downstream” issues. Of course, with a well written contract you have legal recourse in the event of default. Practically the cost of justice in monetary, reputation, and time may not be worth the recovery it may offer/

I have written about multi-level distribution on numerous topics. In many cases manufacturers sell through, not to, distributors that sell through retailers to consumers. One of the most terms, if not the most important, to understand is the transference of title of the products.

Many consumer electronics and software companies maintain multiple agreements with distributors to fulfill orders to retailers. One agreement is a pure consignment agreement where the title of the product and the payment terms for the product do not trigger until, and instantly, when the consumer pays the retailer for the product. The title actually transfers directly from the manufacture to the consumer.

Another agreement may have the title transferring to the distributor, or retailer, upon shipment. However, the payment terms may be no better, or even worse, than the consignment agreement. Additionally, this type of contract most likely also includes return privileges which practically may be similar to the consignment agreement.

There are major differences to consider. In today’s retail climate they are very important. One recent example was a major computer retailer that closed last year – without declaring bankruptcy. The retailers’ owner sold to an investment liquidation group that closed the business and sold the assets. I happened to have clients with both situations. One sold directly to the retailer, the other sold through a distributor with a consignment agreement.

The retailer sold to the liquidator and the liquidator appointed a creditors representative (law firm) to represent the creditors as a group. The creditors I knew received partial payments, much less than half, as an initial payment with a second payment to be disbursed later as all of the disposals and all liabilities were reconciled. I’m guessing the first payment came about six months after shipments and the final reconciliation payments up to a year or more.

Another client, with the consignment agreement, demanded return of their product. They received about half of the product back, granted, a portion needed to be repackaged due to cosmetic damage. The remaining product was deemed “sold” and my client demanded FULL payment. After some haggling, my client got very close to full restitution. The key factor here was the title of the products. As this client owned or retained the title until the instant there was a sale to the consumer, the retailer/liquidator was acting as a sales agent, or if not a thief, and did not have the right to the full sale value.  

Similar circumstances could be present in the event of a loss due to fire, theft, water damage, or a natural disaster. When in doubt, read the contact, sooner rather than later.  

To be continued……

 Upcoming Blogs:

“Using contract call centers for lead generation, sales, customer service and support, and disaster planning.”

“Small product and packaging changes can open new market opportunities with little additional cost.”

“Inventory from Raw Materials through the sales channel.”