Distributor contract
checklist
Companies having decided to use distributors should be thinking in an early stage about an agreement to be made. Although most contracts are only used only when conflicts arise and one of the two parties has chosen to terminate the agreement. For the distributor it is rather easy to stop selling a product line but distributors tend to continue contracts, find a solution first for possible stocks rest, or aim for compensation before accepting the termination. Making a contract should also be used as a basis for successful cooperation based on well considered rules. So the process of making the contract might be far more important than the signed paper itself.
The items for the contract have in general 3 dimensions:
1. (green) sales-planning items aimed at creating business for both parties
2. (Blue) operational items to agree on timing, production, delivery, payments, logistics etc.
3. (Red) all general items closely related to the legal aspects and terminations aspects of the agreement. Please not that any termination argument often includes blue items as well.
Our list is not exhaustive and depending on the type of business should be further completed. It is made with utmost care but we cannot accept any responsibility for its content nor for any actions you take or happen based on this list. In all cases we advice to have your contracts checked by proper legal specialists.
Clearly define the 2 parties
Territory
Exclusive or preferred supplier/distributor
Expected performance in general terms
Period of contract and notice period
Present product range
New products handling
Account planning by the distributor
Principles on pricing and discounts
Personnel planning at the distributor
Training and information planning of manufacturer
Brochures and other sales material provided by manufacturer
Samples
Exchange of market information
First budgets, prognosis and agreed frequency of updates
Set of benchmarks for reports and planning
Information channels, fixed contact points in both organizations
Minimum order quantities, payments, delivery and shipping terms
Policy for referring information requests
Complaint handling
Product liability
Stock levels
Return goods policy and costs
Use of brand-names and protection
Terms for termination
- Failure to perform according to agreed plans and goals
- Abuse of brand-names
- Not meeting payment terms
- Misuse of products or wrong applications
- Changes in ownership of distributor
In case of legal arbitration, country and court
This checklist is primarily made from the perspective of the manufacturer. A good distributor will certainly add some items that will strengthen his position in operational as well as legal terms.
© Yke Veraart RM
Source: the marketingprofs.com newsletter, Managing Channels of Distribution ( K.Rolnicki), Kotler, Blackwell and Veraart Group documentation on Distributor contracts
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