In the coloured-gemstone and jewellery trade, approval — also widely known as memo or on memo — refers to a commercial arrangement in which a seller releases stones or finished jewellery into a buyer's temporary possession for evaluation, with the understanding that items not purchased will be returned within an agreed period. The practice is one of the foundational mechanisms of the wholesale gem trade, enabling retailers, designers, and manufacturers to assess goods against client requirements or existing inventory before committing to a purchase.

How the Arrangement Works

Under a typical approval transaction, the supplying party — whether a cutter, dealer, or importer — prepares a written memo document listing each item by description, weight, and agreed value. The receiving party takes physical custody of the goods but does not acquire title; ownership remains with the supplier until an invoice is raised for items the buyer elects to keep. Items not selected are returned in their original condition within the stipulated timeframe, commonly between seven and thirty days, though longer periods may be negotiated for high-value or complex selections.

The memo document serves as the legal record of the transaction and typically specifies: the precise inventory released, the per-item or lot valuation, the return deadline, the party responsible for insurance during transit and while goods are in the buyer's possession, and any conditions governing how the goods may be shown or handled. In most trade relationships, the receiving party assumes full insurance liability from the moment goods leave the supplier's premises.

Role of Trust and Credit

Approval transactions depend fundamentally on established trust and, in many cases, a formal credit relationship. Suppliers will generally extend memo terms only to buyers with a demonstrated track record of timely returns and payment. New trading relationships typically begin with smaller parcels or lower-value goods before memo privileges are extended on significant inventory. Within the major trading centres — Antwerp, Bangkok, New York's 47th Street, and the Tucson and Las Vegas gem shows — approval arrangements are so routine that a dealer's willingness to send goods on memo is itself a signal of confidence in the recipient.

Risks and Best Practices

Despite its prevalence, the approval system carries meaningful risk for the supplying party. Loss, theft, damage, or — in less scrupulous transactions — the unauthorised pledging of memo goods as collateral have all been documented in the trade. Industry bodies including the American Gem Trade Association (AGTA) recommend that memo agreements be executed in writing for every transaction, however familiar the parties, and that suppliers retain signed copies. Some larger operations use serialised memo pads or digital inventory-tracking systems to maintain an auditable chain of custody. Buyers, for their part, should ensure their insurance coverage explicitly extends to goods held on approval, as standard business policies do not always cover third-party property in the insured's possession.

Relationship to Related Terms

In everyday trade usage, approval, memo, and on memo are effectively synonymous, though some dealers draw a subtle distinction: approval may imply a shorter, more informal evaluation period, while memo connotes a fully documented consignment with a formal written agreement. The term trial is occasionally used in the same sense, particularly in the British and Commonwealth trade. All three terms describe the same underlying commercial structure and should be distinguished from outright consignment, in which the supplier's goods are held by a retailer for an indefinite period and sold on the supplier's behalf for a commission.

Further Reading

• AGTA Trade Practices — agta.org