As your business grows and expands into new markets, you may be wondering whether achieving that growth means taking big risks.
Scaling your operations and protecting your interests can actually go hand in hand and one of the most effective ways to do this is by putting a distribution agreement in place.
What is a distribution agreement?
A distribution agreement is a legally binding contract between a supplier, such as a manufacturer or brand owner and a distributor.
This agreement allows the distributor to purchase goods and resell them within a defined territory or market.
It is not to be confused with an agency agreement where an agent sells on your behalf.
Instead, a distributor will take ownership of the goods and sell directly to customers.
Distribution agreements can come in handy when you are looking to expand your business into markets where you have little to no presence.
Sometimes they can give you the key that opens the door to local knowledge and networks without having to establish your own operations.
Why do I need this agreement?
You might feel that a handshake agreement or informal arrangement is sufficient at first glance, especially if you trust the other party.
However, the lack of a formal agreement could leave room for misunderstandings to arise.
A distribution agreement will set out exactly how your commercial relationship will work.
This should define products and territory, pricing and payment terms, marketing responsibilities, intellectual property protection and performance expectations.
It can also help reduce the risk of disputes and ensure you are all on the same page from the outset.
So, if things do unfortunately go wrong, you can go back to your agreement and know how the issue should be resolved and what your rights are to terminate the relationship.
Are there different types of distribution agreements?
Different business strategies require different types of agreements and you will need to choose the right structure based on how much control you want and what you want to achieve.
An exclusive distribution agreement is used to grant one distributor sole rights within a specific territory and this can strengthen brand control and encourage commitment.
However, it does limit your ability to work with others.
On the other hand, there is a non-exclusive agreement and this allows multiple distributors to operate in the same area and can offer you more flexibility and a greater market reach.
Additionally, there is a selective distribution agreement and this is often used for premium or specialist products and distributors must meet certain standards to protect the brand reputation.
How can we help ensure your agreement is enforceable?
Distribution agreements are the first brick in building a successful commercial relationship and we want to make sure it is done right.
We can help draft or review your agreement, negotiate terms, ensure the agreement is compliant and that your interests are protected.
If issues do start to arise, we can advise you on how to manage disputes and the best option to do this, such as through enforcement or negotiation.
Our professional team want to help you get your agreement off to a good start and help you grow.
If you need further advice on commercial agreements, get in touch.
