Distribution agreements play a pivotal role in shaping the success and growth of businesses. They do this by defining the terms under which products or services are delivered to consumers. In this blog post, we will delve into the key terms of distribution agreements and explore their significance in creating mutually beneficial relationships between manufacturers and distributors.
So, What Exactly is a Distribution Agreement?
A distribution agreement serves as the governing document that defines the relationship between distributors and suppliers or manufacturers. These distributors are enlisted by suppliers or manufacturers to market their products. Consequently, it is vital for both parties to the agreement to carefully examine and comprehend the essential terms outlined in the distribution agreement.
The Middleman: Why Not Go Direct to Market?
While bypassing distributors and going directly to market may seem tempting, engaging these middlemen unlocks a world of expertise and established networks. Distributors are skilled in navigating specific markets, managing logistics, and implementing successful sales strategies. Including them in your operations not only streamlines the process but also takes advantage of the distributor’s ability to reach the intended target audience.
Exclusive vs. Non-Exclusive Appointment
An exclusive appointment typically means that the distributor holds the sole right to distribute the product. This exclusivity may extend to a specific geographic area, such as a state, country, or region.
On the other hand, a non-exclusive appointment allows distributors to work alongside others, potentially even the supplier or wholesaler specified in the agreement. While this allows for multiple players in the distribution network, it can possibly introduce competition among distributors.
Timeframe and Termination
The lifespan of a distribution agreement matters, and so it’s essential to explicitly establish the intended duration for its effectiveness. The distribution agreement should clearly identify the initial period of engagement for the distributor and specify under what circumstances either party may terminate the agreement.
Duties and Obligations
It is vital to explicitly outline the duties of each party in the distribution agreement. The Supplier and Distributor will have distinct obligations that must be adhered to. By defining these roles, both parties promote a cooperative business relationship.
Clearly laying out key performance indicators (KPIs) or targets in black and white is crucial in the distribution agreement; it’s the roadmap to success. These goals shouldn’t just be doable, they should be both achievable and motivating. If the distributor fails to meet the agreed-upon targets, potential resolutions may involve a performance review, reconsideration of the targets, or, in more serious circumstances, considering termination of the contract or revoking exclusivity granted to the distributor.
Orders, Delivery and Payment
The supplier or wholesaler’s established protocols are likely to influence the procedures for ordering, delivery, and payment. Nevertheless, it is important for the key terms of a distribution agreement to outline the conditions under which both parties acknowledge and complete payments for an order.
- Distribution agreements govern the relationship between distributors and suppliers or manufacturers
- Distribution agreements should include specific key terms to ensure a mutually beneficial relationship between distributors and suppliers or manufactures.
Gladwin Legal are experts in Commerical Law and have extensive experience in advising businesses. If you require assistance in understanding your legal obligations please contact us at or 1300 033 934.