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Distribution Agreement/ Vendor Agreement
A distribution agreement is an agreement that governs the relationship between a business owner or supplier and a distributor. It lays down the stipulation of work to be performed by the distributor for the business owner.
- Business owner or supplier
This can either be an individual or a company that owns the product(s) or service(s) and/ or is authorized to supply it to the distributor.
A distributor is someone who purchases the product(s) or service(s) from the business owner or supplier and agrees to market and sell the same as per the conditions laid down in the agreement.
Essentials of a distribution agreement
Parties and purpose of the agreement
The agreement should identify the supplier and the distributor. It should also lay down the primary purpose of entering into the agreement like resale of the supplier’s products or services.
It should mention if it is an exclusive agreement between the parties or if there are going to be multiple distributors for the same region.
It should specify the geographic region(s) where the distributor is permitted to sell the owner’s products or services per the terms of the agreement.
Product or service specification
The products or services to be supplied to the distributor should be clearly identified in the agreement.
Order, pricing, and other terms of sale
The channel of orders, pricing of the products or services, payment mode, etc. should be explicitly laid down in the agreement.
Consideration or payment structure
It should specify whether the distributor’s fee shall be commission-based or any other agreed payment arrangement.
It should clearly call out the expected responsibilities and duties of both the supplier and the distributor.
Duration and termination
It should specify the term or duration of the agreement, i.e., when the distributor may market and sell the supplier’s products or services. It should also include the provision and procedure to end or terminate the relationship by either party for any reason whatsoever.
Dispute resolution and governing laws
It should explicitly mention the State and jurisdiction of courts and applicable law in case of any dispute arising out of this agreement. Preferably it should be as per your place of residence. You can also include an option for arbitration to amicably settle any disputes without having to go for litigation.
Why do you need a distribution agreement?
Business owner or supplier:
A distribution agreement can help you reach multiple markets and regions with the help of distributors. Market penetration becomes easier for you.
- Better market reach
The distributor in most cases has a strong network of customers. You have an option to choose between multiple distributors for a particular region or a single larger distributor. A distribution agreement can let you reach new markets without many costs, by utilizing the distributors’ network.
- Reduce burden
It will help you assign several responsibilities to the distributor like marketing and selling your products and/or services, regular maintenance and upkeep, customer support, etc.
- Protection from fraudulent practices
It lays down the terms and conditions to be followed by a distributor while marketing and selling your products and/ or services. It also establishes the mechanisms and consequences in case of breach of these terms. This ensures that your brand name and products/ services are not misused by the distributor.
- Easier access to quality products and/or services
You already have a strong network of customers, to begin with. A distribution agreement will help you get in the business of marketing and selling products and/ or services without having to invest large amounts in actual production.
- Clear role setting
A distribution agreement will lay down your expected responsibilities and duties. This will ensure that you can carry on with your business by the specified terms, without any confusion and unnecessary future disputes.
- Expansion of client-base
It will help you maintain consistency while marketing and selling quality products and/ or services, often produced by reputed suppliers.
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Are you one of these?
- A young business in need of market penetration at minimal cost
- A supplier looking for market expansion
- A distributor
Do you relate to any of these statements?
- As a supplier owns unique products and/or services
- As a supplier is looking for distributors who would follow your terms and conditions
- As a distributor wishes to comfortably market and sell a supplier’s products and/ or services without any legal complications