Engaging distributors is a great way to ensure your
goods reach territories beyond your capacity, or a way to increase
your market presence if you are a reseller. A well drafted
distribution agreement can be very rewarding but needs to be
carefully thought through to ensure no love is lost between the
distributor and supplier in the long term.
Whether you are the supplier or the distributor, there are a few
things you should consider before entering a distribution
If you are a distributor:
Do you want the exclusive rights to distribute the goods within
a territory? If so, be prepared to meet strict quotas and reporting
requirements, and have a great marketing plan in place.
Ensure any minimum order quotas are not too onerous,
particularly if you are a non-exclusive distributor.
Clarify how warranty claims are to be addressed – will
you be the middle man between the customer and the end user? Or
will you be trained to remedy all warranty claims?
Ensure you have a licence to use the intellectual property of
the supplier, particularly for your marketing activities.
What restraints, if any, have been placed on you? Can you
distribute products from the supplier's competitors?
If you are a supplier:
What reporting requirements do you require from the
distributor? Consider rolling forecasts and regular progress
reports to help manage your inventory.
Limit your risks. Your warranties should extend to the extent
the goods have not been modified, used, tampered with or installed
without your authorisation.
Will you be responsible for installation of the goods? Or can
your goods only be installed by qualified personnel? This is
important to maintain quality control of your goods and your
How will you be paid? Upfront payment, or payment upon receipt
of goods, is preferable.
Consider the term of the agreement and how it can be
terminated. Upon termination, will you purchase the goods back from
the distributor, and if so, at what price?
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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