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 agreement.
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 brand.
- 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?