A consignment is a agreement to pay a supplier of goods after the goods are sold. It is very important the supplier of goods and LEC has a honest and good working relationship in order to reach the common goal of selling the equipment or attachment. It works best when common goals are discussed and a plan is made to sell the unit.
What is the advantage for the seller? The goal should be to maximize the value of your "good" and return the seller a larger return than if he or she was selling it themselves. Below are some of the advantages LEC can offer.
What is the advantage for LEC? The biggest advantage is LEC is not carrying the cost of the asset. There is no large cash outlay or interest cost for carrying the asset. Other adavatages are the cost of repair or clean up is usually passed on. Other cost like insurance are not incurred.
Their are two types of consignment contracts. One, is a Percentage of sale contract. The second is a fixed cost contract. I will give a basic description below.
PERCENTAGE OF SALE. The basic idea is when the asset is sold the seller pays LEC a agreed upon percentage amount of the total sale. Typically the lager the value of the equipment the lower the percentage. The lower the value the high the rate. This type of contract works best on item where the transaction will most likely will be simple. An item that will be a cash and carry sale works good with this contract.
FIXED COST SALE. The basic idea is the seller and LEC agree on an amount the seller wants to clear for the sale. LEC will then add there desired profit on top of the agreed upon contract number. Other cost occurred is the responsibility of LEC to account for. Knowing a fixed number helps when a transaction is complex and has multiple layers of cost. This type of contract also works best when the end user makes offers and LEC and the seller need to make a quick reaction to close the deal.
Consignment sales need to be discussed. Both parties need to feel comfortable with the partnership they are entering into. We have sold large equipment fleets over multiple years in phases, retirement liquidations, fleet upgrades, bank liquidations or single item sales. Every deal is different and we just need to work through the details. Please give Dave Langefels a call to discuss these contracts (513)276-5500.