Distribution agreement

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What's a distribution agreement and when do you need it?

This is a standard distribution agreement and you can adapt it to suit most distribution arrangements relating to the supply of goods.

There are many ways to sell what you supply. Distribution and agency models are two of the most common ones if you’re not planning to supply the end consumer directly. Both are quick and powerful ways to increase market penetration, exploit new markets and boost sales. They can be particularly useful and efficient models when you’re expanding into new locations, where you might not have an established customer network or knowledge of the local trading laws.

They both have substantially different approaches to your control of the goods, the levels of risk you each incur, ownership payment arrangements and consequences of termination, for example. And they require different agreement templates. So it’s important to know which relationship you want to put in place.

For instance, an agent sells in your name and on your behalf and is never named as the seller of the goods. It is effectively a facilitator or introducer, acting as an intermediary between you and the end customer. It never takes ownership over your goods and typically incurs little to no risk in respect of them (you’ll probably have to insure the agent in respect of any action it takes on your part). While the agent usually has your authority to create a contract between you and the customer, you remain directly and contractually liable to the customer and you take the credit risk on the customer.

By contrast, the distributor is your customer, even if it isn’t the final one that you’re targeting. The distributor buys from you, takes over ownership of your goods and sells to its customers (who should be aligned with your intended target customers). The distributor takes the credit risk on the customer, you take the credit risk on the distributor.

Distributors tend to take on a lot more financial risk than agents, but they tend to recoup this in their margins on the resale of the goods, which are generally of a higher value than the commission paid to agents.

There are also different types of distributor: sole distributors, exclusive distributors and non-exclusive distributors and you’ll need to be clear on what type of distributor you are going to appoint.

Our template covers the drafting options relevant to each, as well as in-built guidance to help you to decide what’s best for you.