Understanding Del-Credere Commission
When a consignor grants a del-credere commission to a consignee, this arrangement has specific implications for the handling of abnormal losses.
What is Del-Credere Commission?
- A del-credere commission is a type of commission that a consignor pays to a consignee for taking on the risk of non-payment from customers.
- This commission incentivizes the consignee to ensure sales are made and payments are collected.
Abnormal Loss Explained
- Abnormal loss refers to losses that occur due to unforeseen circumstances, such as damage, theft, or other incidents that exceed normal business risks.
- Such losses are not accounted for in typical business operations and can significantly impact profit margins.
Responsibility for Abnormal Loss
- In the context of del-credere arrangements, the responsibility for abnormal loss typically lies with the consignor.
- Since the consignee is compensated for taking on the risk of non-payment, the consignor bears the burden of any abnormal losses that occur during the consignment process.
Key Points to Remember
- The del-credere commission protects the consignee against bad debts.
- The consignor remains responsible for losses that fall outside normal business risks.
- This structure emphasizes the need for clear agreements between consignors and consignees to outline risk-sharing responsibilities.
In conclusion, when a del-credere commission is in place, abnormal losses are generally borne by the consignor, underscoring the importance of risk management in consignment arrangements.