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?