Richard Mullett, lawyer and director of The Legal Partners, explains how to get the best deal when using agents and distributors, as well as issues to be aware of.
Exclusive or non-exclusive distribution deal or sales contract?
Once you have decided whether you will appoint an agent or a distributor, the next decision is whether the appointment will be exclusive (that is to say, no other agents or distributors will be appointed in the specified territory) or non-exclusive.
If it is an exclusive appointment then this should be tied to the achievement of sales targets (by volume, turnover, margin) within certain timescales by the agent or distributor so you can measure how they are doing and whether you want to renew the arrangement or not.
If they don’t achieve these targets then the appointment with the agent or distributor becomes non-exclusive (and you can appoint other agents/distributors as well to the area) or you can terminate the contract.
Be clear about what their obligations are
Be very clear with your agent/distributor what obligations they are taking on in the agreement between you, including:
- How they can use branding – in other words, what they can properly and legally do to promote the service and what they can’t do
- What marketing support the agent/distributor can expect to receive
- What training of sales personnel with specific product knowledge they can expect
- Whether the appointment is exclusive or non-exclusive
- If exclusive, what targets your agent or distributor must meet to retain that status
- What levels of customer service and/or service level agreements (SLAs) you want them to achieve (as the agent/distributor is your representative with the customers)
- Whether these targets can be reviewed and renegotiated and in what time period
- How long the agreement will last
- When will the agreement terminate and what will happen if it does. There will be different financial and operational effects and requirements written into the agreement for termination on notice or at the end of the term compared with termination if there is a breach of the agreement by the agent/distributor
- What intellectual property (IP) the agent/distributor will be able to use and how they will be able to use it
- The payment currency and payment terms.
Focussing discussions on these elements at the beginning sets clear expectations and deliverables and forms a good basis for a successful partnership.
There are some other articles and resources which will provide further useful know-how:
- What’s the difference between an agent and a distributor? This article explains the differences so you can decide if an agent or distributor is most suitable for your business.
- Bribery and corruption liability under the Bribery Act 2010 is one of the most important risks to assess and minimise when appointing agents or distributor. Failure to do so could lead to prosecution in the UK for the UK exporter and its directors. The article giving advice for UK exports relating to the bribery act explains the risks.
- An Anti-Bribery Toolkit will also help keep you and your business out of trouble.
- Finally, our webinar on agents and distributors goes into great depth about how you can get the best from your distributor and is well worth a listen.