Agency agreement

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What's an agency agreement, and when do you need it?

Agency agreements are a great way to expand your business, without having to set up additional operations to do so. Agents act on behalf of another business, usually to sell that business' products or services for them. They are mostly treated as an extension of your business, not as a separate business partner, like a distributor. When you use an agent, you're still very much in control of what that agent does, including how it prices, markets and otherwise sells your goods or services, and all of that detail needs to be clearly captured in an agreement, so that both you and the agent are clear on what's expected and any targets and obligations you want to impose on the agent.

This is important because with the freedom to dictate how the agent acts, also comes the responsibility for what happens to your goods and services while the agent is selling them, meaning that you continue to carry the risk in those goods and services, as if you were selling and delivering them yourself. In fact, the agent will enter into contracts in your name, not theirs so you'll definitely want to be clear on the rights you're giving them and what you want them to do.

Agency agreements are often used by businesses who want to expand their sales into a new country or a new way of selling (e.g. online). They may want to do this non-exclusively, so that they retain the right to sell (or give others the right to sell), in that new place alongside the agent, or they might grant the agent an exclusive right to sell on their behalf and surrender (usually on a time-limited basis) the right to sell in the same place themselves.

A commission will normally be payable by you to the agent, and you may want to set minimum sales or performance targets and other conditions for the agent to meet before that commission is payable; again, this is the sort of detail that your agency agreement should record, as well as how long you want this arrangement to last.