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home | Success Tips Archives | Protect Yourself When Consigning
 

Protect Yourself When Consigning
December 10, 2008

A common misconception among designers is that the consignment (or memo) agreement they sign with retailers will protect their rights and their ownership of unsold jewels. That's not necessarily so.

If a store declares bankruptcy -- a timely consideration these days -- with your jewelry in it, it is quite possible that you will never see your jewelry again and not be compensated for it, either. What you need to do to avoid this fate is take the extra step of making sure you are considered a secured (vs unsecured) creditor. Doing so means that you will be on the list to be paid like all other secured creditors like banks and lien-holders. In practicality, that means you are positioned closer to the top of the list of people who will get their money if the store goes under -- a significant consideration in this type of situation.

Here's how it's done. (Gone are the days of doing business on a handshake.)

1. Get your retailer to sign your consignment agreement as before.

2. Before sending your goods, file a Uniform Commercial Code (UCC-1) financial statement covering the goods in question. (Google "UCC" and the state in which the store is located to find the right website to get the appropriate state form.) You need to be especially certain that everything on the paperwork is absolutely, positively, exactly correct as misspellings and inaccuracies can be grounds for invalidation of the entire document.

In addition, if the store changes its name or address after you file, it is up to the designer to re-file the paperwork with the new information because the original UCC-1 document can be ruled invalid four months after the change.

3. Go online to see if anyone holds a lien against the store in question and then inform those parties that you have sent goods on consignment and have filed UCC-1 papers. Both this step and the previous one can be handled by internet services that do this for a fee. See below.

The advice we got from designers was that you wouldn't file UCC papers for short-term memos of a few items but rather for longer, larger arrangements. Also, we were told that you can do it afterwards, if necessary, for goods you have already consigned.

UCC-1 filing fees can be as little as $15, although most fall into the $100 - $200 range. Again, use this for larger, longer term memos. Some state systems are more complex than others.

If you have consignments in more than your home state, it is probably wiser to use a service that specializes in this. The largest is www.CTliensolutions.com. That company will also (for a very small fee) monitor bankruptcy proceedings and notify you if a store declares chapter 7, 11 or 13. The designer who told us about this company said simply, "When I looked into filing it myself it seemed so confusing so I just didn't. Then I found this service and it has been a no-brainer." We consider this money well spent.

Modern Jeweler has two relevant articles on this subject: about UCC and the sad tale of David Nygaard. [http://www.modernjeweler.com/print/Modern-Jeweler/Protecting-Consignment-Goods/1$833] [http://modernjeweler.com/print/Modern-Jeweler/Life-After-Foreclosure/1$831]


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