Consignment Sales, Taking Consignments, and eBay Trading Assistants

Q: Is there any real difference between drop shipping and taking consignments of inventory?

A: When you sell consignments on eBay, you are acting as an agent for someone else. You collect a commission (usually a percentage of the winning bid or retail price on eBay) and remit the balance to the person you're selling for. You handle all aspects of shipping the product to the winning bidder. As an online retailer using drop shipping, you are a business purchasing wholesale products from a licensed distributor or manufacturer and reselling those products. The wholesaler handles the shipment to the consumer for you, but you handle all other interaction with the consumer on the auction. The relationship you have with a wholesaler is long term and a renewable source of the product, whereas your relationship with a consignor (the legal term for the person for whom you are handling the consignment sale) is usually a one-time transaction.

Q: Do you have to be an eBay Consignment Shop or an eBay Trading Assistant to take consignments of inventory to sell on eBay?

A: No, although there are some advantages to being an eBay Trading Assistant (see questions that follow). Any eBay seller can take consignments—in fact, I think you're crazy not to do so, especially if you are selling antiques and collectibles on eBay, as consignments are an excellent source of quality inventory.

You do not need a license to take consignments on eBay, although a handful of states are rumbling about requiring eBay sellers who take consignments to obtain auctioneer's licenses.

Just take out an advertisement in your local newspaper along the following lines: "Want to sell on eBay but don't have the time or patience to do it yourself? We take consignments! Call [your toll-free telephone number]."

Q: What are the biggest mistakes people make when taking consignments from people to sell on eBay?

A: When taking consignments, always keep in mind that the people consigning stuff to you are not professional retailers or wholesalers. Often their decisions are based on emotion, and they have a nasty tendency to change their minds in the middle of your eBay listing. Never, ever take consignments without a written consignment agreement that includes the following important provisions:

• A statement that the consignor has the legal authority to sell the goods. (If you're dealing with an estate, ask for a copy of the consignor's letters testamentary appointing him or her the executor of the estate.)

• If the consignor is an individual or estate, the person's Social Security number or Employer Identification Number (EIN). This is important, as you will have to send the person IRS Form 1099 at the end of the year if you handled more than $600 in consigned merchandise during the calendar year.

• A provision ensuring that once you take delivery and possession of the goods, the consignment is irrevocable and the consignor cannot back out of the deal without your express written permission. It is essential that you take possession of consigned goods; otherwise, you have no protection if the consignor changes his or her mind, the goods are lost or stolen, and so forth.

A sample consignment agreement for an eBay seller appears as an appendix in my book The eBay Seller's Tax and Legal Answer Book.

Q: If I'm already taking consignments from people to sell on eBay, what are the advantages of becoming an eBay Trading Assistant?

A: An eBay Trading Assistant is someone—usually an experienced eBay seller— whom eBay has certified and lists in its Trading Assistant directory as a reliable person to take consignments. Generally, an eBay Trading Assistant must have completed at least one hundred successful selling transactions (not necessarily consignment sales) and have an excellent overall feedback rating.

The biggest advantage of being an eBay Trading Assistant, according to Mar-cia Cooper (generalenterprises.net), is that you are listed in eBay's directory, which is often the first place consignors look when they are seeking a local or regional consignment solution. Says Cooper, "We have gotten many, many, many calls from the Trading Assistant directory on eBay, and it's gotten us a ton of business."

For a great book on building a successful eBay Trading Assistant business, see The eBay Entrepreneur: The Definitive Guide for Starting Your Own eBay Trading Assistant Business, by Christopher M. Spencer (Kaplan Business, 2006).