Distribution Agreements 101
When manufacturers and suppliers need to sell their products or services to the public, they commonly use experts called distributors. As independent entities, distributors serve as a bridge between companies and their customers. Distributors can buy your products for resale at a marked-up price, or they can process orders on your company’s behalf, earning a commission on completed orders. If you’re planning to work with a distributor, you’ll need to know more about distribution agreements and how they can protect your end of the business arrangement.
Why use a distribution agreement?In many ways, you share a kind of symbiotic relationship with your distributor. Your company will avoid the added cost of distributing your own products, and the distributor will have access to a product line they can sell without the added trouble of production, research, and development. That said, your arrangement will still need the support of a valid contract to ensure both sides have enough legal security to continue doing business. That’s where distribution agreements come in.
What, exactly, are distribution agreements?When you create and sign a distribution agreement, you are making a legal agreement between your company (the supplier) and the distributor who is selling your goods. The document will essentially state both of your requirements for supplies, the delivery of goods, scheduling, inspection requirements, returns, and other terms and conditions of your business relationship.
What issues should I include in my agreement?Your distribution agreement can either be exclusive or nonexclusive. Exclusive distribution agreements give the distributor exclusive control over a particular product line, sales channel, or territory. The supplier will usually get to outline specific performance obligations in return.
Your distribution agreement might discuss issues like:
-The term of the contract
-Whether the distributor can represent competing products
-The terms and conditions of sale
-Defects and return credit
-The conditions needed to terminate your agreement
How can I write a strong distribution agreement?A strong distribution agreement can help both parties avoid misunderstandings and conflicts about how payments are made, where products will be distributed, what rights and responsibilities you each have, and many more. The exact clauses will depend on the needs of your business. The contract must also observe the particular laws in your state, such as its competition laws.