DISTRIBUTION AGREEMENTS: TOP 10 TIPS
Solicitors, Manchester, London, UK Wide Lawyers, Distribution Agreements
A well drafted distribution agreement can be very rewarding yet you must ensure it is secure enough to avoid future discrepancies between the distributor and supplier occurring. Engaging distributors is an effective way to ensure your goods are traded with other countries outside of your reach. This ensures that you increase your market presence.
Clear and precise clauses need to be used or avoided to ensure that problems do not arise if an agreement is terminated. To escape some of these pitfalls, follow our tips below:-
1. Take on what you can handle
When a distributor and a supplier contract, you should place a limit on their distribution powers, especially when the distributor is only used to operating within a small area. This does not mean that you cannot negotiate on this later as contract amendments can be made by using a deed which are common place and which allows a successful supplier to expand their operations.
2. Avoid foreseeable conflict by using clear and concise clauses
Most distribution agreements involving seasoned distributors and manufacturers allow for termination clauses. This is sometimes straightforward without problems. However, the supplier and distributor sometimes disagree over the contents of the clause, or its scope. This means that valuable trade can be lost.
3. Seek legal advice
A lack of understanding of distribution agreements when parties need to refer to an agreement due to a problem, is common. It is good practice to have the agreement reviewed by an experienced solicitor due to the complexities and legal ramifications involved.
4. Level the playing field during negotiation
Businesses belonging to an industry body will find that they are able to make use of a model agreement including drawing on wider supporting resources. Using this as a starting point is effective as it allows the parties to begin negotiations on their contract and ensures that both parties are in a fair, equal position.
5. Be aware of expenses
There is a high frequency of price changes within all industries, therefore suppliers need to ensure they are not restricted in how they can change the pricing. This needs to be balanced as one party with a huge advantage is not good for a harmonious relationship.
6. Protect your IP and confidential information
The agreement should contain the duties and responsibilities of the distributor regarding the intellectual property of the supplier. Without this, numerous problems can easily arise. Appropriately drafted terms can ensure the protection of any confidential information.
7. Know what you are and are not liable for
In law, you are liable for your product. The distributor may want to negotiate an indemnity where the supplier takes all responsibility for any claims made against the distributor. For example, if a faulty product is sold, the supplier would be liable to the distributor for a claim brought against them. Limiting liability needs to be set out clearly in terms correctly drafted. Your warranties, for example, should incorporate the assumption that goods have not been modified, used, tampered with or installed without your authorisation.
8. Where a distribution agreement is not utilised
Some manufacturers choose not to use a distributor to disperse their goods. This may be the case when the inventory of goods is relatively small. For example, the farmer may have only a small farm, and may choose to sell his produce at local farmers’ markets instead of selling produce to distributors. He may pay a small fee for distributing his goods at local farmers’ markets, which is an informal distribution agreement.
9. Term duration
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?
10. Reporting methods
What reporting requirements do you require from the distributor? Consider rolling forecasts and regular progress reports to help manage your inventory.
Should you need a professionally drawn distribution agreement or are involved in a distribution agreement dispute, contact our specialist commercial contracts solicitors or commercial litigation solicitors in Manchester on 0161 820 8888 and solicitors in London on 0208 889 8888 for immediate assistance.
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