LM2EX Hints and Tips (1) – Setting Distributor Contracts

Having a lot of my time taken up in the past with optimising or rationalising channel partners (Distributors or Agents) in many countries, I thought it would help in giving you some tips if you are considering formalising your relationship with a contract.

You will have spent a lot of your time in choosing your route to market, carried out a thorough due-diligence and decided on your channel partner that will distribute your products or service in a particular territory.

The next step has to be setting up a distributor or agency contract and I can’t stress again enough as to how important formalising your new relationship through a contract is, and not to just rely on a so called ‘gentleman’s agreement’.

It’s really important to have a well drafted distribution agreement to set out the rights, responsibilities and obligations of the parties in detail. If there is no written agreement, or if the written agreement is not drafted properly, then you lend yourself open to all sorts of complexities and costs especially where local laws are very protective to the distributor or agent.

I hope that the following might be useful for consideration if you intend to move the process forward towards this commercial marriage.

1)  Meet ‘face to face’

It will show that you want to build an open relationship of respect and trust.

It will be an opportunity to discuss the proposed inclusions and to assess the distributor’s position with respect to potential areas which might show difference in views and focus.

2) Don’t do too much to fast

Don’t be pushed to draw up an agreement. Make sure you first carry out a comprehensive due-diligence process in order to understand more about your potential partners and their motivation in doing business with you.

 3) Protect and red line your draft agreement

Make sure you can follow any proposed changes by the distributor and that they are ‘logged’.

4) Include natural termination and renewal (semi-automatic) clause

This gives both parties an opportunity to get out of the agreement relatively quickly if so required, and so saving again on possible future legal challenges.

Keep away from the so called ‘evergreen’ contract periods since these will put you at a disadvantage if you are considering changing the country representation at some point.

5) Keep your agreement balanced

This ensures that neither party holds unfair power over the other.

Both parties should have the opportunity to terminate the agreement under similar conditions.

Once either party detects bias in the agreement, it serves to increase friction in the relationship.

 6) Keep your contract safe and secure

Nominate a responsible custodian to look after agreements and changes to them.

Decide on a safe and secure location for the original documents.

Pdf the original signed contract, send it to your new partner with a document to be signed which states they have reviewed the contract copy and that they agree that it represents a true and accurate copy of the original.

Provided that this document is signed by an official signatory of the company, it will provide a further ‘safety net’ if either partner loses the contract for whatever reason.

7) Four eyes are better than two

It essential that you get a corporate lawyer as well as commercial expert when forming your contract. If possible try and get a lawyer from the same industry.

 

I hope that the above might be useful for consideration when you start to get into the commercial ‘marriage’ process.

LM2EX provides courses or training on how to manage and motivate distributors, and so please contact us to discuss possible areas where you think we could help your company be successful in international trade.

Written by

Keith W. Jones founder of the Link Me Group of companies has vast experience in International Business. With over 20 years experience behind him, heading up subsidiaries of multimillion dollar companies in Europe, Asia and directed Global Distribution Management Teams.
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