Today’s 3-in-3 Topic is: UCC Filings and Selling on Consignment
“3-in-3” is a 3 question, 3-minute interview with an NCS colleague.
Today’s 3-in-3 features UCC Specialist, Elizabeth Hunt. Read on to learn more about consignments and how UCC filings can secure consignments and reduce your risk.
“What is a consignment?”
Elizabeth: A consignment is when the owner or the consignor retains title to the consigned goods that are delivered to the consignee. The consignee will then hold the goods for sale or for use. Once those goods are sold, the consignor’s rights then attach to the proceeds.
“Does consignment carry risk?”
Elizabeth: Yes, consignment does carry risk, specifically if the consignor doesn’t take the necessary steps to protect their ownership of their goods. Without the additional security of a UCC Financing Statement, the consigner could lose their rights to their goods and the proceeds.
“How can a consignor protect the consigned goods & what steps should they take?”
Elizabeth: Consignors can protect their goods by complying with Article 9 of the Uniform Commercial Code and filing a UCC-1.
If you are consigning goods, follow these important steps:
- First, you should have a consignment agreement signed by both you (the consignor) and your customer (the consignee). This agreement should include the terms and conditions of the consignment, a clause granting the security interest, and a detailed description of your consigned goods.
- Second, you need to make the agreement public record by filing the UCC-1 Financing Statement in the consignee’s state of organization.
- Third, you should conduct a UCC search and send authenticated notification letters to the prior secured parties. This notification informs prior secured parties that you have, or expect to acquire, a Purchase Money Security Interest in your consigned goods.
Once these steps have been completed, the consigned goods are protected against competing claims. It is important you complete this process prior to releasing your goods, because anything delivered prior to perfection of your security interest may not be secured from prior secured creditors.
The takeaway from this segment is that if you are consigning product, make sure you file a UCC. When filing the UCC, you should search and notify all other creditors of the goods located at your customer’s business that you hold title to those goods.