Here’s what to think about in a distributorship agreement

If you’re a manufacturer who’s thinking about using a distributor to expand your reach into new areas – or if you’re a distributor who wants to sell products for a new company – a good contract is the key to making the relationship work and avoiding misunderstandings and conflicts.

Here’s a brief list of the issues that you’ll want to think about and make clear in the agreement before you sign on the dotted line:

  • Does the distributor have exclusive rights within a certain territory? If so, how is that territory defined? Must the distributor meet certain quotas in order to maintain its exclusivity?
  • Is the distributor also allowed to sell products made by the manufacturer’s competitors?
  • What reports must the distributor provide? Should they include forecasts of future orders, so the manufacturer can better manage its inventory?
  • How and when will the manufacturer be paid?
  • Who will install and service the products – the manufacturer or the distributor? If it’s the distributor, what quality controls are in place to protect the manufacturer’s reputation?
  • What warranties is the distributor allowed to offer?
  • If a warranty claim is made, who will handle it – the manufacturer or the distributor?
  • What rights does the distributor have regarding use of the manufacturer’s trademarks, brand names, images, etc. in its advertising?
  • How long will the agreement last? Under what conditions can it be terminated?
  • If the agreement is terminated, what will happen to any products that are in the distributor’s possession? Must they be returned? Must the manufacturer buy them back? At what price?