For new and untested designers, entering a memo (a.k.a. consignment) agreement with a retailer can feel like a “worth-it” proposition. You don’t get paid up-front, but it’s a way to get your merchandise into a desirable retail store. For retailers, selling on memo is a way to test a new line or brand without financial commitment.
But memos come with potential downsides for both manufacturers and retailers. Chiefly, they have the potential to lead to legal disputes if they aren’t documented meticulously. Below are issues to consider, and a few examples of how your business could be affected:
Loss, Damage, or Theft
- What if the merchandise is lost in shipment?
- Can the goods be traveled with off the business’s stated premises? What happens if they are lost in transit?
- If there’s an event that the memo holder isn’t insured for, like a flood, then what?
- What if there’s an internal theft?
- If there is indeed damage sustained, which party decides what to do next?
Terms of Payment
The longer merchandise is out on memo, the more risk accumulates. Not only does it allow more time for one of the aforementioned accidents to happen, but the memo holder could neglect to make payments when the items are sold.
It’s important to assess your risk as a supplier by considering the inventory of the memo holder. If they’re responsible for lots of merchandise from various other parties and that merchandise is similar, what are the chances that different items may be mistaken for one another?
This was a big concern in the midst of the Great Recession, when the liquidity of nearly every business was being tested. As a supplier, if your memo agreement doesn’t adequately protect you in the case of a merchant going bankrupt, courts could actually use the merchandise on memo to satisfy debts. But your priority to be paid as a supplier may be less than the banks’ and other creditors’. If the merchant’s debt obligations are large enough, your merchandise might never make it back to you.
Talk to a qualified expert to help you understand the terms of any memo agreement