Buying stock or selling on consignment in China ecommerce: compare cash, inventory and returns

The labels do not settle the risk

Wholesale purchase for resale. In the first hypothetical agreement, the operator takes delivery and the inventory risk, cannot return goods simply because they sell slowly, and owes the supplier under an agreed schedule. A real purchase contract may still allow returns for defects, price protection or other adjustments.

Sale on consignment. In the second hypothetical agreement, the supplier controls unsold goods, the operator arranges the sale for a commission, unsold goods can be returned under the contract, and there is no minimum purchase commitment. A document labelled “consignment” may instead impose a minimum, loss reimbursement or early settlement; inspect those terms rather than assuming the supplier bears every risk.

Compare who controls goods in storage, stock counts by SKU and batch, customer-facing seller and after-sales responsibility, price discretion, damage and returns, the basis for commission, payout dates, invoicing responsibilities and what happens to remaining goods if the relationship ends. Verify the registered store operator and the platform's permitted trading and payment arrangements. A supplier's consent alone does not establish that every proposed store or collection arrangement is permitted.

Same 60,000 units sold, different cash schedules

Assume both options place 100,000 units in the channel on day 0. Consumers pay RMB 150 per unit including tax. By day 20, 60,000 units have been sold and all RMB 9 million has been received. There are no refunds, platform holds or other receipts in this illustration. All amounts are hypothetical cash amounts including tax; advertising, marketplace charges, logistics, warehousing, tax payments and other costs are excluded from this limited comparison.

Option A: purchase for resale. The operator buys 100,000 units at RMB 80 each including tax, for a total cash purchase price of RMB 8 million. It pays 30%, or RMB 2.4 million, on day 0 and the remaining RMB 5.6 million on day 30. If those payments and the day-20 consumer receipts all occur as assumed, the listed cash movements by day 30 are RMB 9 million less RMB 8 million, or a RMB 1 million net inflow. The initial RMB 2.4 million still has to be funded on day 0.

Option B: consignment. The operator pays no inventory advance under this particular contract. The supplier controls the goods before sale; the operator arranges the sale and receives a commission of 25% of actual consumer cash receipts including tax. The contract permits the operator to deduct its commission and settle the balance with the supplier on day 30. On RMB 9 million collected, the commission cash amount is RMB 2.25 million and the supplier settlement is RMB 6.75 million. The operator retains RMB 2.25 million from these listed flows before the omitted costs and tax payments.

The day-20 bank receipt of RMB 9 million is not all freely available earnings under the consignment scenario: RMB 6.75 million is still owed to the supplier under the stated terms. Actual rights to withhold commission and settlement dates must be checked against the contract, marketplace and payment arrangements.

Who carries the 40,000 unsold units?

Under option A the operator has 40,000 units unsold. At the illustrative RMB 80 purchase payment per unit, those units correspond to RMB 3.2 million of the original cash paid. This is not cash immediately recoverable and is not a calculation of the accounting carrying amount after tax or adjustments. The operator must manage the agreed inventory risk, storage, potential discounting and any necessary impairment assessment.

Under option B, the supplier still controls the 40,000 units under the stated assumptions and they can be returned under the contract. The parties nevertheless need matching records for physical quantity, SKU, batch, movements, loss and return. Warehouse or damage liability does not automatically disappear because the operator does not own the goods. Inventory in a warehouse is not automatically a completed consumer sale.

Now assume only 30,000 units sell in the same period, with all other assumptions unchanged. Consumer receipts are RMB 4.5 million. Option A's listed receipts less its full purchase payment are a RMB 3.5 million net cash outflow by day 30, with 70,000 units unsold. Under option B, commission is RMB 4.5 million × 25% = RMB 1.125 million, and the supplier settlement is RMB 3.375 million. This is a comparison under two stated contracts, not a forecast of demand.

Do not confuse retained cash, revenue and profit

The RMB 1 million, RMB 2.25 million and RMB 1.125 million figures describe only the stated cash flows. The purchase option has unsold goods and related risks; the consignment amount still has to cover marketing, platform, logistics, staff, returns and tax payments. None is a net-profit calculation, and the figures do not prove one agreement is always better.

For entities applying Chinese Accounting Standards for Business Enterprises, the Ministry of Finance's 2025 annual reporting guidance directs companies to consider the relevant facts, including control of the goods before transfer to the customer, when assessing principal versus agent and gross versus net revenue presentation. The words “wholesale” and “consignment”, or the identity of the bank account receiving cash, do not determine the answer by themselves. Entities applying another accounting framework must assess that framework separately; invoicing, VAT and consumer obligations also require their own fact-based review.

For group reporting, the IFRS Interpretations Committee's principal-versus-agent discussion explains why responsibility for fulfilment, inventory risk and pricing discretion are indicators considered in context. It concerns a specific software-reseller fact pattern and should not be treated as an automatic conclusion for a China goods arrangement.

Negotiate the cash risk before launch

Build conservative, base and stronger sales cases. For each, show the advance, balance due, actual customer and platform receipt dates, settlement obligations, commission and costs. In the purchase case, identify the largest funding requirement under slow sales. In the consignment case, test minimum commitments, payout delays, unsold-goods handling charges, supplier recall rights and early termination. Agree a stock reconciliation and an owner for resolving discrepancies.

An overseas brand's team should first confirm the China store and selling entity, importer and warehouse, then map renminbi contracts and settlements into its group reporting process. It should not apply its home-country accounting or tax assumptions to the local transaction without review.

Use the cash-flow planning guide and inventory cash guide for the next calculation. CaiGeek is an AI financial assistant for small and medium-sized businesses; business and finance teams check the actual contract and data. Contact CaiGeek to discuss the available product and services.