A distributor is a prominent link in the sales chain of a product. Distributorships help a manufacturer reach multiple dealers and end customers in a specific geographical area. Such selling requires thoroughly devised strategies for coordination with individual dealers. If the products are to be sold to end customers, knowledge about local markets and a capacity to achieve market penetration can go a long way. This is the reason why many manufacturers prefer appointment of distributors for selling their products instead of engaging in direct distribution. A distributor is a person or a business entity engaged in the sale/distribution selling products manufactured by a particular manufacturer.
Distributorship And Dealership
Sometimes, the terms dealership and distributorship are used interchangeably. However, there is a distinguishing factor. Dealers deal with end users of a product, while distributors deal with the manufacturer, whether or not they deal with end customers. A distributor may enter into contracts with dealers for selling the products of a company. The geographical area covered by a dealer is limited while the area of a distributor’s operations can be vast. The variety of products supplied by a distributor may also be huge compared to a dealer.
A distributorship agreement is a document that creates a relationship of distributorship between a manufacturer and a distributor. The agreement confers on the distributor the right to supply the manufacturer’s goods within a region or regions. Such rights may be exclusive within that particular region/regions.
The distributorship agreement shall contain the understanding between the manufacturer and distributor along with the terms and conditions of distributorship. Matters such as remuneration to be paid, insurance; transportation and related risk, duration of the distributorship, legal matters: All find mention in a distributorship agreement.
What to Include In A Distributorship Agreement?
A large percentage of distributors enjoy exclusive or monopoly rights in any decided geographical boundary. In an exclusive agreement, only the appointed distributor may be allowed to sell the products of the manufacturer in the specified region/regions. In a non-exclusive agreement, the manufacturer shall reserve the rights of selling to other distributors as well.
Terms And Conditions Of Sale
The distributor usually purchases the products manufactured by the company and further supplies it to dealers and/or end users located across different locations. This requires prior understanding between the parties about payment cycles, storage and transportation requirements. The procedure for sales with each steps involved may be detailed. For example, the process of placing a purchase order by the distributor.
The ways in which the distributor may fix the prices of the product should be detailed along with the maximum price at which he/she may sell it to the authorised dealers or end users.
Term Of The Agreement
Distributorship is usually granted for a fixed number of years. However, it can be made to be renewed yearly or after a fixed number of months in order to protect the interests of the parties. This can avoid legal disputes just in case any party is not satisfied with the working of the agreement.
In order to facilitate higher sale of the products, it is important that the distributor should be allowed to carry out marketing activities which may involve representing the manufacturer as a bona fide representative. This can be mentioned in the agreement.
Usage of trademarks and other Intellectual Properties of the Manufacturer is essential for the distributor for day to day operations including advertisements and other representations before buyers of the products. There should be a framework created for permitted usage by the distributor.
The geographical territory covered by the agreement
One of the most important details to be covered in a distributorship agreement is the geographical area within which the distributor may be allowed to sell the goods of the manufacturer. Once the area is specified, any exclusive rights need to be highlighted.
Perform or perish is the mantra in business contracts. The sales volume to be achieved by the distributor should be decided in advance. If the distributor is not able to keep up the target, the agreement may be allowed to be terminated at the option of the manufacturer.
The circumstances in which the agreement may be terminated should be detailed. There must be options available for both parties to rescind the agreement if they are not happy with the outcome or performance of the other party.