CPIM Practice Exam

In the context of consignment, when does a supplier receive payment for goods?

1. Immediately upon delivery

2. After the goods are used or sold

3. At the end of each month

4. Upon signing the contract

The correct answer is: After the goods are used or sold

In the context of consignment, the supplier receives payment for goods after the goods are used or sold. This model allows the supplier to send goods to a retailer or another party without requiring immediate payment. The retailer has the goods on hand but only pays for those that they successfully sell to end customers. This arrangement minimizes the financial risk for the retailer, as they do not need to invest upfront capital to purchase inventory they may not sell. The supplier benefits from potentially broader market exposure for their goods, as they are not constrained by upfront costs faced by retailers. The other options do not align with the principles of consignment. Payment upon delivery implies a transfer of ownership, which is not the case in consignment where ownership remains with the supplier until the goods are sold. Payment at the end of each month does not directly correlate with the consignment arrangement, as it does not account for the necessity of selling the goods first. Lastly, payment upon signing the contract suggests a traditional sales transaction rather than the typical consignment practice where the supplier retains ownership until sale.