Consignment inventory is stock that physically sits with a retailer, distributor, or marketplace partner, but legally remains the property of the supplier until it's actually sold to an end customer. The partner holds and displays the goods without having bought them; payment flows back to the supplier only once a unit sells, with the partner keeping an agreed commission or margin.
The defining feature is where the risk sits. Under standard wholesale, the buyer purchases the stock upfront and carries the risk that it doesn't sell. Under consignment, the supplier keeps that risk — and keeps their capital tied up in inventory sitting in someone else's building.
Consignment vs. wholesale vs. vendor managed inventory
| Model |
Who owns the unsold stock |
When does the supplier get paid |
| Wholesale |
The buyer, from the moment of purchase |
On the agreed payment terms after delivery, regardless of whether it sells |
| Consignment |
The supplier, until the unit actually sells |
Only after a sale to the end customer occurs |
| Vendor managed inventory |
Usually the buyer — ownership isn't what VMI changes |
On normal terms; VMI only changes who triggers the reorder |
VMI and consignment are frequently bundled in the same agreement, which is why they get conflated — but they're separate levers. Consignment is about ownership; VMI is about who decides when to replenish.
Why would a supplier agree to consignment?
Usually to get distribution that wouldn't otherwise happen. A retailer reluctant to commit capital to an unproven product will often agree to stock it on consignment, because their downside is shelf space rather than cash. For a brand trying to break into a new retailer or market, that can be the difference between getting placement and getting declined — a trade-off worth making when the goal is proving sell-through in a new channel, similar to the reasoning in our comparison of channel strategy options.
The cost is real, though: the supplier's capital stays locked in inventory they can't control, in a location they don't operate, with sell-through visibility that depends entirely on the partner's reporting.
What does consignment mean for accounting and compliance?
Two consequences that catch brands out. First, accounting: consignment stock stays on the supplier's balance sheet as inventory, not the partner's — it hasn't been sold yet, so no revenue is recognised until the end customer buys it. Second, cross-border: holding consignment stock in another country generally creates the same VAT registration obligations as holding it in your own warehouse there, because the trigger is inventory physically sitting in that country, not who you sold it to. A consignment arrangement into an EU market can therefore create tax obligations a brand assumed it had avoided by not opening a local entity.
What do brands get wrong with consignment inventory?
- Treating it as risk-free distribution. It isn't — the supplier carries the full inventory risk, the capital cost, and the obsolescence exposure while the goods sit unsold.
- Not specifying who covers loss or damage. If stock is damaged, stolen, or lost in the partner's warehouse, the agreement needs to say explicitly whose loss that is — by default the owner bears it, which is the supplier.
- Accepting weak reporting. Without regular, granular sell-through and stock-level reporting, the supplier is effectively blind to inventory they still own — making forecasting and replenishment guesswork.
- Overlooking the VAT trigger abroad. Assuming consignment stock in another country is "not really" inventory held there is a common and expensive misreading of how storage-based VAT obligations work.
FAQ
Who owns consignment inventory?
The supplier, until the unit is actually sold to an end customer. The retailer or partner holds and displays the stock physically but never purchases it — which is what distinguishes consignment from standard wholesale.
Does consignment stock stay on the supplier's balance sheet?
Yes. Because ownership hasn't transferred, the stock remains the supplier's inventory for accounting purposes and no revenue is recognised until the end sale takes place.
Does holding consignment stock abroad create VAT obligations?
Generally yes. VAT registration obligations are typically triggered by inventory physically sitting in a country, regardless of the commercial arrangement behind it — so consignment stock in an EU market can create the same registration requirement as stock in your own warehouse there.
Whichever model you use to get stock into a market, the tax and compliance obligations that come with it don't disappear. eBrands carries those as your Merchant of Record. See how it works for physical-goods brands.
