The prime difference between consignment and the joint venture is the nature of the association between the parties. They both seem like same but there are many things involved that are pretty different from each other like the relation between them, profit sharing, and proprietorship.
In this article, we are about to discuss the difference between them, but before that, we will discuss what is consignment and a joint venture? And their types? So, without further delay let’s start the article.
Descriptions of consignment and joint venture
Before recognizes the differences between both of them first we have to know the difference between them.
What is a consignment?
A consignment is a business trade means consignment is the dispatch of the goods by one party to another party to be sold on the former’s behalf in exchange for payment of a commission.
In this whole arrangement, there are two categories involves one is the consignor which can be an individual or an organization that manufactures or owns the good and the other way is consignee which works for consignor that they receive products from the consignor and sell them to the third party in the interchange of commission from consignor.
Basic terms involved in consignment
The basic terms which are involved in the consignment are given below:
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Consignor
Consigners are those who manufacture goods or purchase them from the manufacturer and covey them to the consignee’s location it could be anywhere like a warehouse or shop.
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Consignee:
The consignee is the person who sends the goods for sale. Now consignee takes control of the goods and stores them at his location and now their task is to sell these goods.
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Consignments
The goods which are sent from consignor to consignee for the purpose of selling these things in exchange for commission are known as consignment.
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Performa invoice:
It is like a rough invoice sent to the consignee from the consignor to convey information regarding goods like quantity, varieties, prize, etc.
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Account sales:
When consignees receive the goods, they will do some expenses like warehouse rent, advertisement, etc. So, it is a periodical statement given by the consignee to the consignor (it could be weekly or monthly depends upon agreement) giving details of sales some of them are given below
- Profit or loss.
- Expenses incurred.
- Commission due to any loss.
- Deducting amount of advance remitted (if any) by him.
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Commission:
The consignee will pay the consignor, the amount received from the sales of goods after deducting his due commission which is decided in the agreement, and also take their expenses, if any. There are also three types of commissions which are given below:
Ordinary commission:
This is the type in which the consignee is allowed to sell goods and commission is calculated on the actual sales and take commission calculated at an agreed % of gross sales.
Del-Credere commission:
Additional commission for taking additional responsibilities of collecting money from the customers.it is described in a simple way as to pay the direct commission instead of taking help from someone else. The main purpose is to increase sales.
Surplus commission
The surplus commission is described as the extra commission for services apart It has been calculated on the total sales. It defines the responsibilities such as promote the new product in the market, supervising the performance, etc.
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Normal loss:
Normal loss is arising due to the nature of the goods consigned. Its nature is as follows:
- It occurs due to unpreventable loss.
- It is due to natural causes such as spoilage, breakdown, drying, etc.
- It is due to leakage.
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Abnormal loss:
Abnormal loss is due to mishaps and ineffectiveness. This loss is not natural and can not be avoided with genuine care. Its nature is as follows:
- It is unnatural and avoidable.
- It occurs due to reasons of fire, riot, and theft, etc.
- In case of abnormal loss, the amount of stock is not inflated.
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What is a joint venture?
A joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal and for mutual benefit. We can also use the term JV for the joint venture.
All the participants which are involved in this venture are answerable for the profit or loss. the joint ventures which are totally based on the correspondence can take the form of any legal assembly. Hence now in this part, we can talk about JV business, its type, agreement, and its advantages and disadvantages.
Types of joint venture:
In this part we are talking about the most common types of joint venture, which are given below:
- If the joint venture is the business, it will be an incorporated joint venture. This type is not recommended because one wants to respond to an aggressive bid or a request for citation.
- A co-operation between two different parties that keep their separate recognition is known as a contractual joint venture. This type is very safe and recommendable.
Both of these types which are given above an agreement are important for managing the joint venture.
Agreement:
In a joint venture some important agreements are involved which are given below:
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Funding:
Both parties need to specify that how much funding they will put into the venture, and for how long so on the basis of this they plan how to work
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No separate laws:
While they are into a corporate structure there is no separate controller who decides the duties or refines the activities of the venture.
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Profit and loss to be shared:
State how any profits or losses will be divided between both of these parties. Liabilities must also be included. So, then there are not any confusions that who will take profit or who will take a loss.
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Creates synergy:
When two or more organizations work on a joint venture then both of these parties share their attributes. The company possesses a special characteristic that another company might lack.
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Disputes:
When if both of these companies facing any problem, so they need to specifies the mechanism by which any problem can easy resolved.
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Principals:
Include a statement that is not admittedly binding on the two parties. Instead, it should be a statement of principle enabling the parties to negotiate a final legal decisive agreement in good faith.
Advantages of joint venture:
The advantages of the joint venture are given below
- Increased resources
- Access to new market
- Sharing of risks and costs
- Access to technology
Disadvantages of joint venture:
The disadvantages of the joint venture are given below:
- Difficulties for employees
- Clash of cultures and management styles
- Possibilities of conflicts
- Risk of secrecy being disclosed
Differences between consignment and joint venture
The differences between consignment and the joint venture are given below:
Nature:
Consignment is the dispatch of goods from consigner to consignee to be sold by the consignee but the joint venture is not a permanent business between two organizations for a particular purpose.
Parties involved:
The parties involved in consignments are known as consigners or consignees. But in joint venture parties involved are known as co-ventures.
Relationship between the parties:
The relationship between consignor and consignee is of principal and agent. But in the joint venture, the relationship between the two organizations is of partners.
Duration:
The consignment agreement is of a long period and does not come to an end to the completion of a particular transaction. But in a joint venture, the time period is generally of the short time period because the joint venture is of a specific purpose.
Sharing of profits:
In consignment, all the profit is of the consigner because the consignee takes his commission from sales. But in a joint venture profit or loss is equally distributed in the agreed ratio.
Powers and the authority:
In the consignment, the consignee has no right in regard to the goods. But joint ventures all the co-ventures have equal rights or power.
Contribution of finance:
In the consignment consignor is the main provider of finance. but in a joint venture, the finances are provided by all co-venture that are included in the joint venture.
Conclusions:
Consignment is a dispatch of goods from consigner to consignee to be sold while the joint venture is the process in which two different organizations work together which might be in the same country for mutual benefits. The main difference between them is discussed above in the article. I wish this will be helpful for readers.