AISale or return: what it means and how to agree it with a shop
Sale or return means you supply stock to a shop, the stock stays your property until the shop sells it, and the shop can send back whatever doesn't sell. You are paid for what sells, usually at agreed review dates, instead of invoicing the whole order when it ships. For VAT, HMRC treats the tax point as the date the shop sells the goods or confirms it will keep them, or 12 months after you sent them, whichever is earlier. This guide explains the sale or return meaning, the pros and cons for a brand, when to agree to it, and how to set up a sale or return agreement that keeps track of your stock.
1. Sale or return meaning: how it works
On a normal wholesale order, which the trade calls firm sale, the shop buys the stock outright. You invoice when you dispatch, the shop pays on your terms, and anything it can't sell is its problem. Sale or return moves that risk back to you.
| Firm sale | Sale or return | |
|---|---|---|
| Who owns the stock in the shop | The shop, once delivered (or once paid, if your terms include retention of title) | You, until the shop sells it |
| When you invoice | On dispatch | For what has sold, at each review date |
| Unsold stock | Stays with the shop | Comes back to you |
| Who carries the risk | The shop | You |
| Paperwork | Order, delivery note, invoice | Agreement, delivery note, stock record, sales reports, invoices, returns note |
What "on a sale or return basis" looks like in practice
Ember & Wick, a candle maker, sends a gift shop 24 candles on a sale or return basis. At the end of each month the shop reports how many it sold. Ember & Wick invoices for those, at the agreed trade price, and the rest stay on the shelf as Ember & Wick's stock. At the review date, the two agree what happens next: top up, swap slow scents, move to normal orders, or collect what's left.
2. Pros and cons of sale or return for a brand
Pros
- It gets you into shops that won't take a risk on a new brand. A buyer who won't commit £200 to an unknown range may give it shelf space if they only pay for what sells.
- It tests a product before a firm order. A new scent, a new skincare product or a first product in a new category gets real sales data from a real shelf.
- It shows you sell-through. Because the shop reports sales, you see how fast each product moves in that shop, which a firm order doesn't tell you.
- It can lead to a normal account. A product that sells well gives you the evidence to ask for firm orders next time.
Cons
- Your cash is tied up. You have paid to make the stock and won't be paid until it sells, which may be months.
- Stock ages on the shelf. Food goes out of date, labels fade, candle tops collect dust, and skincare has a shelf life. Returned stock may not be saleable.
- The shop has less reason to push it. A shop has no money riding on stock it can send back, so your products may not get the best shelf.
- It needs tracking. You have to know what is sitting in each shop, chase sales reports, and invoice small amounts often.
- Damage and loss need agreeing. Breakages, theft and shop-soiled stock all need a rule about who pays.
- It is harder to get stock back if a shop closes. A written agreement saying the stock is yours helps. Take legal advice if this happens.
3. When to agree to sale or return, and when to say no
Sale or return works best as a short trial that turns into firm orders. Agree to it when most of these are true:
- The product has a long shelf life. Wildfire Chilli Co, a chilli sauce maker in Bristol, can leave sauces with a long best before date in a farm shop for a season; a bakery can't do the same with cakes.
- The shop is one you want to be in, and it has customers who fit your product.
- The quantity is small enough that you can afford not to be paid for it for a few months.
- You can see the stock, either because you visit or the shop sends photos and sales reports.
- There is an end date, after which the shop moves to firm orders or the stock comes back.
Say no, or offer something else, when:
- The product is chilled, fresh or short-dated.
- The product is made to order or personalised, so a return is worthless to you.
- The shop wants your whole range on sale or return with no end date.
- The shop already sells your products on firm sale. Moving an existing account to sale or return costs you the risk without winning you anything new.
Alternatives to offer a cautious buyer: a smaller first order, a mixed case, or a one-off swap of a product that doesn't sell for one that does, on its next order.
4. How to set up a sale or return agreement
Put the arrangement in writing before any stock leaves. A sale or return agreement can be a one-page letter both sides sign. Ask a solicitor to check the wording; this guide is not legal advice.
Terms to include
| Term | Example wording |
|---|---|
| Products and quantities | The products and quantities listed on each delivery note marked "Sale or return". |
| Ownership | The goods remain the property of Ember & Wick Ltd until sold by the shop to a customer. |
| Price | The shop pays the trade price on the current price list for each unit sold. The recommended retail price is shown on the price list. |
| Sales reports | The shop reports units sold, by product, by the 5th of each month. |
| Invoicing and payment | Ember & Wick invoices units sold each month. Payment is due 14 days from the invoice date. |
| Review date | The arrangement runs for 12 weeks from the first delivery, when both sides will review it. |
| Returns | Unsold goods are returned in saleable condition within 14 days of the end of the arrangement. Ember & Wick pays for the return delivery. |
| Damage, loss and theft | The shop pays the trade price for goods damaged, lost or stolen while in its care. |
| Ending the arrangement | Either side can end it with 14 days' written notice. |
Your ownership clause works like the retention of title clause in your normal terms. Our wholesale terms and conditions template explains retention of title and the other clauses that still apply.
Tracking stock held
Mark every delivery note "Sale or return" and keep a stock record for each shop. One row per product is enough:
| Product | Sent 2 Oct | Sold Oct | Sold Nov | Returned | Held now |
|---|---|---|---|---|---|
| Fig & Cedar candle, 200g | 12 | 5 | 4 | 0 | 3 |
| Sea Salt candle, 200g | 12 | 2 | 1 | 0 | 9 |
Example: invoicing from the stock record
October: 7 candles sold at £6.75 = £47.25, plus VAT £9.45 = £56.70.
November: 5 candles sold at £6.75 = £33.75, plus VAT £6.75 = £40.50.
Held now: 12 candles, worth £81.00 at trade price, still Ember & Wick's stock.
"Held now" is sent minus sold minus returned. Check it against a count in the shop at every review.
Review dates
Set the first review date in the agreement and put it in your diary. At each review, count the stock in the shop together and compare it with your record. Then decide, product by product:
- Selling well: ask the shop to move to firm orders for that product.
- Selling slowly: swap it for a product that is doing better, or move it to a better spot in the shop.
- Not selling: collect it, and check its condition before you put it back into stock.
In the stock record above, Fig & Cedar has sold 9 of 12 in two months and is ready for a firm order. Sea Salt has sold 3, so at the review Ember & Wick swaps it for another scent. Our guide to wholesale reorders covers how to keep a stockist ordering once they move to firm sale.
5. Sale or return and VAT: the tax point
If you're VAT registered, sale or return goods have their own tax point rule. HMRC treats the tax point for sale or return goods as the earlier of:
- the date the customer adopts the goods, by selling them or by confirming they will keep them, or
- 12 months after the goods were sent out.
In practice, a candle the shop sells has its tax point when the shop sells it, so the monthly sales reports tell you which goods to account for VAT on. Goods still on the shelf 12 months after they were sent have a tax point on that anniversary, even if the shop hasn't sold them. For the candles sent on 2 October 2026, that is 2 October 2027.
That 12-month rule is another reason to set review dates and an end date: an arrangement that drifts on for a year leaves you accounting for VAT on stock you haven't been paid for. Check how your VAT applies to sale or return stock with your accountant, especially if you sell a mix of zero-rated and standard-rated products.
Questions about sale or return
What does sale or return mean?
Sale or return means a supplier gives a shop stock that stays the supplier's property until the shop sells it. The shop pays only for what it sells and can return what it doesn't.
How does sale or return work?
The supplier delivers stock under a written agreement, the shop reports what it has sold at agreed intervals, and the supplier invoices for those sales. At the review date, the shop either moves to normal orders, keeps going, or returns the unsold stock.
Who owns the stock in a sale or return agreement?
The supplier owns the stock until the shop sells it to a customer or confirms it will keep it. The agreement should say so in writing.
When is VAT due on sale or return goods?
HMRC treats the tax point as the date the customer adopts the goods, by selling them or confirming they will keep them, or 12 months after they were sent, whichever is earlier. Check the treatment for your products with your accountant.
Is sale or return a good idea for a small brand?
It can be, as a short trial with a written agreement, a small quantity and a long shelf life product. It ties up your cash and stock, so set a review date and aim to move the shop to normal orders.
What should a sale or return agreement include?
The products, ownership, the price per unit sold, how and when the shop reports sales, invoicing and payment terms, the review date, how returns work and who pays for damage, loss or theft.
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