Consignment Account with del

credere clause
By Nikhil Babu
 Accounting for Consignment
“Consignment accounting is a type of business arrangement in which one person send goods to another person
for sale on his behalf and the person who sends goods is called consignor and another person who receives the
goods is called consignee, where consignee sells the goods on behalf of consignor on consideration of certain
percentage on sale.”

Proforma Recurring
Invoice expenses

Non-
Terms Recurring
expenses
Advance

Commission
Del
Credere
 Terms Used in Consignment Accounts

 
Proforma Invoice: When the consignor sends the goods to the consignee, he forwards a statement showing the particulars of goods
such as quality, quantity, price, markings, packing etc. and this statement is called the Proforma Invoice. But in case of regular sale, an
invoice is prepared and sent along with the goods. It implies that a sale has taken place.

Recurring Expenses: These expenses are incurred after the goods have been received at consignee’s godown. These expenses are
incurred quite often and of recurring in nature. These expenses occur regularly at fixed intervals. Generally these expenses are incurred
after the goods have reached the place of business by consignee. They are met by the consignor or consignee. These expenses do not
increase the value of goods.

Non-recurring Expenses: Non-recurring expenses are incurred for bringing the goods from the place of the consignor to the place of
the consignee. Hence, all the expenses incurred till the goods reach the godown of the consignee are non-recurring expenses. These
expenses are incurred only once on a particular con­signment. It will increase the value of goods. These expenses are paid by the
consignor or by the consignee on behalf of the consignor.

Advance: Sometimes, consignor may ask the consignee to pay an advance for the part of the value of goods consigned. Consignee may
send the advance in the form of a draft or cheque. If the consignee is not in a position to advance money, a Bill may be drawn on
consignee. Consignor discounts the Bill and gets the money.

Commission: Consignor pays commission to Consignee for selling his goods. Commission is generally calcu­lated at fixed percentage of
total sales as per terms laid down by the Consignor. These commissions may be simple, or ordinary, special or overriding and Del credere.
Ordinary commission is calculated as per terms laid down by the consignor.
Types of Commission
There are three types of commission payable to consignee on sale of the goods −
• Simple Commission − This is usually a fixed percentage on the total sale, calculated as per
mutually agreed terms.
• Over-riding Commission − In case of an extra-ordinary sale of the goods, some specific amount
is payable to consignee in the form of an incentive is called overriding commission. Over-riding
commission is also calculated on the total sales.
• Del-credere Commission − “An agreement by which an agent or factor, in consideration of an
additional premium or commission (called a del credere commission), engages, when he sells
goods on credit, to insure, warrant, or guarantee to his principal the solvency of the purchaser, the
engagement of the factor being to pay the debt himself if it is not punctually discharged by the
buyer when it becomes due.”
 Del Credere

• The consignee is not expected to sell the goods on credit. However, the consignee has the right to
sell the goods on credit, if consignor permits him to do so. Again if consignee makes credit sales
and if there incurs any loss by way of bad debts then such loss should be borne by the consignor.
• To avoid such a loss, extra commission is given to the consignee, who is responsible for any bad
debts. This extra commission is called Del Credere commission. It is given for taking risk in
credit sales.
• In such cases, consignor receives the gross sale proceeds, whether recovered or not. This is
generally calculated on total sales. Sometimes, del credere commission is restricted to credit sales
only. In that case it is calculated only on credit sales.
 Calculation of del credere commission
Del credere commission is paid to the consignee in addition to his ordinary commission. It is usually
computed at a certain pre-agreed percentage of total gross sale proceeds.
For example, the cash sales are INR5,000 and credit sales are INR2,500. If an ordinary commission of
10% and a del credere commission of 5% are allowed to consignee, the two types of commission would be
computed separately as follows:

• Ordinary commission = (INR5,000+INR2,500) × 10% = INR750

• Del credere commission = (INR5,000+INR2,500) × 5%= INR375 or (INR2,500 × 5%)= INR125

The computation of del credere commission is similar to the computation of ordinary commission.
However, the consignor and consignee may sign a separate agreement regarding the calculation and
payment of del credere commission.
 Del Credere advantages
Consignee receiving Del Credere commission
Where the consignee is in receipt of Del credere commission he would be responsible for the collection of the
dues from the consignment debtors and thus would have to bear the loss on account of bad debts.
Consignee not receiving Del Credere commission
Where the consignee is not in receipt of Del credere commission he would not be responsible for the non
payment of dues by the consignment debtors and thus the consignor would have to bear the loss on account of
bad debts. Not that the consignee would not take any responsibility for the collection of dues, but that he would
not bear any loss on account of the consignment debtors not paying up.

if del credere commission is not paid to the if del credere commission is paid to the
consignee, the consignor will bear the consignee, the consignee will bear the
losses resulting from consignment related losses resulting from consignment related
bad debts bad debts.
Thank You!!